Thursday, May 6, 2021

Investec warns inflation may hit nine percent

The year-on-year inflation ran wild during the month of November raising concern that the Central Bank will not be able to control it for the best part of the first half of the year, an analyst said Friday.

The national inflation rate edged up to 7.7 percent during the month largely powered by transport and food prices which are responding to international pressures.

An analyst at Investec Asset Management, Maungo Lebanna, said in her research note that “our inflation outlook has deteriorated; we previously thought inflation would peak at 8 percent by February, now we see it peaking at around 9 percent.”

“This is a great challenge for the Bank of Botswana (which is charged with) containing inflation,” said Lebanna.

The move comes at a time when the Bank of Botswana is to release its annual monetary policy statement next month and the expectation is that it is unlikely to change its inflationary target range.

Currently, the Central Bank inflationary target range is between four-to- seven percent and, for the second time running, inflation has been above it.
She said although domestic inflationary pressures remain muted, there is a likelihood of a spike in administrative prices powered by local suppliers, such as power and housing, as they might try to increase charges. So far, the Botswana Power Corporation has indicated that it is likely to raise charges and it is likely to be followed by the Botswana Housing Corporation at the close of the first quarter.

This comes at a time when the national inflation rate is under an upward pressure from exogenous factors which are influenced by whether conditions and crude oil prices which are currently hovering above US $90 per barrel. However, by mid-day Friday, crude oil was trading at US $93.75 in London while on the New York electronic trading it was at US $93.47 for the February delivery, a fall of three percent against the Thursday prices.

The slide is influenced by the expectation the US inventories will improve and a bullish expectation on Friday by Deutsche Bank which said that crude oil prices are expected to fall to US $85 per barrel for the year.

Last month, the Department of Energy ÔÇô increased the pump prices of petrol, diesel and illuminating paraffin.

Both lead and unleaded petrol will be adjusted upwards by 25 thebe per liter and diesel will edge up by 20 thebe while paraffin will also move up by 20 thebe per liter.

Fuel prices were last increased on July 1, 2007 also responding to a spike in the international prices of crude oil.

“The increase is due to the increase in the prices of crude oil in the international markets. The prices for the period under review have been fluctuating around US $80 per barrel at the end of October. This has resulted in the negative effect on the slate,” the ministry of Minerals, Energy and Water Affairs said.

The move was aimed at propping up the petroleum fund which is used to subsidise fuel in the country. The government only adjusts prices upwards once it feels that the fund is under threat of depletion.
“Government will continue to monitor the development of the prices of oil products in both regional and international markets to ensure optimal prices to both the general public and fuel supply industry,” it added.

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