The slight rise in consumer price inflation last month has fuelled suggestions in the market there could be a spike in December on the back of a rise in fuel costs that could push food prices up and fears excess credit from commercial banks following Bank of Botswana policy decision on BoBCs could move the numbers up.
In its monthly CPI update, Statistics Botswana said in October 2011, the national year-on-year inflation rate stood at 8.8 percent, up by 0.2 of a percentage point from 8.6 percent in September 2011.
Main contributors to the rise in inflation were food, health and appliances.
Increase in retail fuel prices and Central Bank’s move to limit the issuance of instruments to mop liquidity in the market could fuel inflation, but stronger Pula against the ZAR will, however, help contain inflation as most of the country’s imports come from South Africa.
“We forecast inflation to spike to 9.2 percent in November, driven mainly by the increase in the fuel prices that took place this month,” Investec analyst Carol-Jean Harward said.
During the period, prices of food and non-alcoholic beverages advanced 0.6 percent month-on-month, while Furnishing, Household and Routine Maintenance moved up 0.6 percent.
Statistics Botswana recorded a 1.6 percent annual growth in health costs as a result of a 5.6 percent increase in the out-patient services sub index and a 2.1 percent increase in Medical products, Appliances and Equipment.
Karabo Tladi, an analyst with Motswedi Securities agreed the increase in petrol prices will also put pressure on food prices.
“I forecast Inflation to finish the year 2011 above or near 9 percent y/y due to recent increment in petrol prices,” said Tladi.
Last week Thursday, retail prices for fuel rose significantly; with both unleaded and lead replacement petrol increased by 40 thebe per litre; diesel increased by 51 thebe per litre whilst illuminating paraffin went up by 50 thebe.
“As for next year, I expect inflation to end the year at the upper range of Bank of Botswana objective range of (3-6 percent),” Tladi added.
He, however, sees reduction in government spending to lead inflation down next year.
“However, upside to inflation will obviously exist next year amid increases International food and oil prices as well as increases administered prices.”
Although stronger Pula vs. Rand will help contain inflation, Investec has raised concerns over the cut in issuing of Bank of Botswana Certificates (BoBCs) by Central Bank.
Bank of Botswana (BoB) said continued to incur rising costs of issuing more BoBCs to mop-up increased levels of excess liquidity and the decision to limit the issuance of the 90 day paper was meant to make the banks more creative.
“Although we forecast inflation at 9 percent for December, it may be higher due to the amount of excess cash in the banking system after the Bank of Botswana’s (BoB) decision to reduce the amount of the 91-day Bank of Botswana Certificates (BoBCs) in the market, leaving the banks with over P3.5billion in excess cash,” said Harward.
Tladi differed with Investec because the country’s inflation is largely imported.
“As for BoBC’s; remember inflation in Botswana is mostly imported inflation from neighboring South Africa, who is a major trading partner,” he said.
“So I do not think this can have any major impact on inflation particularly that money markets in our country have surplus liquidity.”
There has been confusion in the market as it was initially thought Bank of Botswana has cut 3 months maturity of BoBCs to 14 days, but the bank has since denied the suggestion.