Saturday, June 19, 2021

Soaring prices should be a cause for concern

Statistics office has just released their latest inflation figures and they show the highest rate increase  for many years.

Bank of Botswana will inevitably be forced to act.

Their instinctive response will be to increase the Bank Rate.

From that, commercial banks will take a cue and increase interest rates.

And so it will become a vicious cycle.

It looks almost certain that Botswana’s economy is headed for a long stretch of low economic growth.

It will be a stretch of low employment and low economic dynamism.

The biggest question is how then does increasing interest rates stimulate economic growth and also

Help create jobs?

Hopefully this is the question that the Bank will grapple with following the announcement by Statistics office.

It is however important to point out that the high inflation, while a shock should really not come as a surprise.

The country has seen moves that were inevitably going to conspire to that effect.

Too many parts of the economy are still closed.

The labour market too has lost a lot of dynamism.

The informal sector is still to really take off again as a result of restrictions imposed by the state of emergency.

Too many businesses have either closed or collapsed.

Fuel prices have been going up almost non-stop.

House rentals have been going up.

Water tariffs have been significantly increased. Power tariffs have been increased twice in less than twelve months, with the first increaser having been a shocker by any measure.

Food prices have been going up as have been transport.

All these happening in the middle of a pandemic that has seen people lose jobs and wages cut.

Most worrying should be the prices of basic food.

Prices of sugar, bread, maize meal, rice and beef  have all been on an upward trajectory.

Pressure to eat healthy food as a result of health concerns under covid have drove up prices of many fruits and vegetables.

They are now well beyond reach for many families and households.

Investors are likely to respond to data published by Statistics office even before Bank of Botswana reacts to the news with the Monetary policy pronouncement.

Again this will give the economy a direction that might not be in the best interest of employment creation.

Whatever happens, it is important for Bank of Botswana not to over-react for doing so could be counterproductive and also detrimental to an economy that is already fragile, subdued and in needed of a stimulus.

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