Botswana’s inflation rate in the first quarter of the year averaged 9.4 percent, lower than last year’s average of 10.4 percent, with consumer prices still higher than Bank of Botswana’s objective range of 3 to 6 percent.
The country’s national inflation rate accelerated last year, recording double digit growth as the Ukraine and Russia war disrupted supply chain, sending energy prices to soar.
The annual inflation rate was 12.1 percent in 2022, almost twice the annual inflation rate in 2021 which averaged 6.7 percent. The increase in the two years has been steep compared to the annual inflation rate of 1.9 percent in 2020.
Bank of Botswana, which is responsible for ensuring price stability, increased the monetary policy rate from 1.65 percent in April 2022 to 2.65 percent in August 2022, and has maintained it to date. The intervention saw consumer prices cooling beginning of the year, with the January rate coming at 9.3 percent, and fell to 9.1 percent in February, and picked to 9.9 percent following Botswana Energy Regulatory Authority’s decision to increase fuel costs.
In the first three months of 2023, prices rose the most for the education sector, clocking 5 percent growth in prices. The food and non-alcoholic beverages prices grew by 2.1 percent, and on a yearly basis, the prices were up by 17.8 percent. The furnishings, household equipment and routine maintenance costs were up by 1.7 percent. The alcoholic beverages and tobacco also climbed by 1.7 percent, while the clothing and footwear prices increased by 1.5 percent.
The central bank’s monetary policy (MPC) in its first sitting of the year in February said while consumer prices will fluctuate, the inflation rate will trend downwards and fall within the objective range in the second quarter of 2024.
The projected decrease in inflation into the medium-term is due to the dissipating impact of the earlier increases in administered prices (base effects), recent decrease in domestic fuel prices, modest domestic demand, current monetary policy posture, expected decrease in global inflation and international commodity prices, as well as the implementation of a smaller downward annual rate of crawl of the Pula exchange rate (1.51 percent compared to 2.87 percent), all of which exert downward pressure on domestic inflation,” said Moses Pelaelo, the Bank of Botswana governor, when announcing the MPC decision to maintain the monetary policy rate at 2.65 percent.
The governor further said the inflation projection is subject to upside risks, including the potential increase in international commodity prices beyond current forecasts and persistence of supply and logistical constraints.
“On the domestic front, the risks for higher inflation relate to, among others, possible annual price adjustments in administered prices that are not factored in the current projections; entrenched expectations for higher inflation; any realised upward pressure on wages; and any, yet unwarranted, overshooting of prices in the advent of reversion of the Value Added Tax to 14 percent; all of which could lead to higher general price adjustments. These risks are, however, moderated by the possibility of weak domestic and global economic activity, as well as restrained commodity prices.”
