Monday, December 5, 2022

Investec wary of rise in water, power tariffs as inflation stays flat

The market has been warned to watch out for upside risks to national inflation because of a rise in the cost of utilities on the back of major announcements recently. Latest data from Statistics Botswana indicates that the annual inflation rate in March was unchanged at 2.8 percent, which was the same figure recorded in February 2015.

However, the rate was lower than the 4.4 percent recorded during the same month in 2014, which the statistics body attributed to the decrease in prices of commodities in the transport component, which dropped by 5.9 percentage points. Local asset management company, Investec said in response to the flat numbers that it was placing emphasis from upside risk from downside risks, as it has been its position in the past.

An Analyst at the company that manages billions of Pula in pensioners’ money, Tshephang Loeto said they are wary of water and electricity movements although these two categories together make only about 3.2 percent of the CPI basket.

“We have maintained a positive view on inflation highlighting the downside risks in the past,” said Loeto, “however at this stage we believe the downside risks are now limited and we place emphasis on upside risks from the possible increase in electricity prices, given that electricity tariffs in South Africa have gone up by 12.5% and Eskom has requested for a further increase to 25.3% which will make Botswana’s electricity imports quiet pricey.”

He added: “Water Utilities Corporation has also revised its water tariffs and introduced some new tariffs like the waste water tariff, which will translate into an increase in prices. We however note that water and electricity categories together make only about 3.2% of the CPI basket.”

While fuel prices have also gone up in South Africa, Loeto said they believe that Botswana’s Petroleum Fund and the establishment of Botswana Oil Company will delay the spill over effect into Botswana, offering a cushion from imported inflation to some degree.

Over the past 12 months to March 2015, the transport category experienced a deflation of 4.8 percent while the food group experienced a stable inflation of 1.9 percent.

“Declining international oil prices have been instrumental to the decline in inflation given that the group makes about 19% of the total Consumer Price Index (CPI),” he said.

Investec also highlighted that the food category is equally facing an upward threat from a slow regional production. “Any increase in this space will however be offset to some extent by the recently zero-rated foodstuffs in Botswana.”

Loeto said on balance, over the medium term, Investec expects inflation to remain within the 3 ÔÇô 6 percent medium term range set by the Bank of Botswana. “Modest domestic demand pressures and benign foreign price developments contribute to the positive inflation outlook in the medium term,” he said.

Statistics Botswana data showed the inflation rates for regions between February 2015 and March 2015, indicated that Rural Villages’ went up to 3.6 from 3.2 percent, Cities & Towns decreased to 2.5 from 2.6 percent and Urban Villages’ went down to 2.8 from 2.9 percent.

Equally, the Trimmed Mean Core Inflation rate registered an increase of 0.1 of a percentage point, moving from 3.2 to 3.3 percent. The Core Inflation rate by exclusion remained at 4.8 percent in March, the same rate as in February.


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