The annual inflation rate in October 2017 was 3.0 percent, registering a drop of 0.2 of a percentage point on the September 2017 rate of 3.2 percent, latest Consumer Price Index (CPI) data has shown.
The data, provided by Statistics Botswana, shows that the October national Consumer Price Index remained unchanged at 103.2 in October 2017.
Domestic inflation remained low during 2016, with average inflation reaching a recent all-time low rate of 2.6 percent in August 2016; well below the lower band of the Bank of Botswana’s objective range of 3-6 percent.
The low inflationary environment observed in 2016 continued in the first half of 2017, with monthly inflation rates reaching as low as 2.7 percent in January 2017, and 2.9 percent in June 2017, hence remaining at the lower bound of Bank of Botswana’s objective range of 3-6 percent. With low domestic demand pressures and subdued trading partners’ inflation, hence low imported inflation, the government says the outlook for price stability remains positive in the short to medium-term.
In December 2015, an economic review published by local bank, Stanbic Bank Botswana, suggested that the rising level of unemployment in the country could be one of the contributors to the low inflation recorded by the domestic economy over the past few years.
The review, authored by lecturers in the Department of Economics at the University of Botswana draw attention to the conventional wisdom that point to a tradeoff between inflation and unemployment.
“Available data shows that disinflation in advanced economies was accompanied by high unemployment. If the tradeoff between inflation and unemployment holds for Botswana, then low inflation does not bode well for the country as it suggests that unemployment has been rising,” reads part of Stanbic Bank’s economic review
Another interesting observation made by the UB economists is that despite the six percent salary adjustments for public sector employees implemented in April 2015, the May 2015 inflation slightly slowed to 3.1 percent. It is said that the slight decline in May inflation may be a reflection that producers respond with a lag to increases in administered prices and wages of public sector employees or of weaker conditions in the labour market. On the other hand, unemployment figures keeps growing every month. Although the official figures are perked at around 20 percent, a leading economic firm, e-Consult Botswana believes that the current figures may be underestimated and could in fact be close to the 30 percent mark. At the same time, UB economics experts note that lack of up to date unemployment figures preclude the assessment of whether the low inflation is directly linked to the high unemployment in the domestic labour market.
“It is indicative of prevalence of excess capacity, that is the economy is producing levels of output that are below the potential. The fact that inflation declined in the environment of accommodative monetary policy stances reinforces this argument. On the other hand, a low inflation relative that of other trading partners, other things held constant, spurs international competitiveness of domestic firms,” states the economic review report.
