Friday, July 3, 2020

October inflation reaches the highs of 3.6 percent

BY BONNIE MODIAKGOTLA

The inflation rate is on the upswing, hitting its highest rate in four years, and the biggest monthly change since last year May. The increase in inflation rate is accelerated by the fuel price costs which were tweaked three times this year, with another upward adjustment expected in December.

Statistics Botswana released its monthly Consumer Price Index (CPI) on Thursday showing that inflation in October was 3.6 percent, an increase from September’s 2.9 percent. The components of CPI, group indices, were generally moving at steady pace between the two months under review.

As expected, the largest price increase was recorded in the Transport Group Index which surged 3.5 percent on the account of price increases in the operation of personal transport and purchase of vehicles. The increase in operation of personal transport section index was due to the rise in retail pump prices of petrol and diesel by P0.65 and P0.73 per litre respectively, which effected on 15th October 2018.

The Transport Group Index with a weight of 20.65 percent is the largest component of the CPI thus its influence in determining the direction of inflation rate.

Other increases across group indices include 0.1 percent increase in the Health group index, and for the Alcohol and Tobacco index. Other groups remained flat, not recording any increases except for the Miscellaneous Goods and Services, and Recreational and Culture group indices which eased 0.5 percent and 0.4 percent respectively.

The country seems to be moving from a low inflation environment that has been persistent in the last three years due to weak domestic demand. The current uptick in inflation can be traced to the cost-push inflation, which is influenced by the supply side. While inflation rate did not react much to the first fuel hike early this year, it buckled under the second increase which was effected in October.

Meanwhile inflation is expected to continue its newly found upward momentum following Wednesday’s decision by the ministry of Mineral Resources, Green Technology and Energy Security and Botswana Energy Regulatory Authority (BERA) to increase fuel prices again, exactly 30 days from the last hike.

In the latest price increase, petrol price will go up by 0.33t per litre, while diesel increases by 0.36t per litre and paraffin will cost 0.31t more. The price adjustments are effective from Thursday 15th November.

“The increase in retail pump prices is necessitated by the growing numbers of under recoveries since September 2017. The actual cost of importing petroleum products into Botswana has been higher than the regulated price. Hence there is a need to align the local retail pump prices with international trends,” the ministry said in a statement.

The ministry of Energy says Wednesday’s fuel price hike was in collaboration with BERA, a departure from October 15 decision in which the ministry acted on its own when it increased prices. Two days after the hike, BERA told parliament’s Statutory Bodies and State Enterprises committee that the ministry of Energy’s decision to increase fuel prices was against the law, as only BERA can recommend whether prices can be increased or decreased.

BERA further revealed that after their detailed analysis and expertise, they had recommended to the ministry that petrol prices be increased by P1.47 per litre while diesel should be increased by P2.25. BERA says it reached the recommended prices due to rising oil prices, and mostly because of the under recoveries since the National Petroleum Fund was raided last year September. Instead, the ministry decided to put brakes on economics, and hit the acceleration on politics; the first adjustments were in May when petrol was up 0.23t, with diesel prices tweaked by 0.43. The October fuel hike saw petrol advancing 0.65t per litre, while diesel got a shot of 0.73t.

The three petrol price increases this year amount to P1.21 and diesel cumulatively went up P1.52 ÔÇô which is still short from the recommended prices, signalling that there might be another price increase if oil prices continue to rise.

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