The national year-on-year inflation rate moved up slightly last month as there was a general upward movement of prices across the board, raising fears that inflation problem is here to stay as the country is a net importer of goods and services.
Data released this week by Statistics Botswana showed Consumer Price Index (CPI) measured inflation stood at 8.3 percent in May 2011, up by 0.1 of a percentage point from 8.2 percent in April 2011.
The three group indices that recorded changes of 1.0 percent were communication (5.5 percent), transport (2.8 percent), restaurants & hotels (2.2 percent) and alcoholic beverages, tobacco & narcotics (1.5 percent).
The transport group index rose as a result of an increase in prices fuel at the pumps.
“This was due to an increase in the constituent section indices of Operation of Personal Transport, which rose by 4.9 percent,” said Statistics Botswana.
“The increase in Operation of Personal Transport section index was attributed to the rise in retail pump prices for both petrol and diesel by P0.50 and P0.40 per litre respectively, which were effected on the 3rd May 2011.”
Carol-Jean Harward, an analyst at Investec said the food and transport indices continue to be the biggest contributors to the rise in inflation levels due to strong global commodity prices experienced in recent months.
“With Botswana dependent on food and fuel imports, the inflation problem is not going to go away any time soon and elevated global food and fuel prices will drive domestic inflation higher over the next few months.”
The two indices have the biggest weights in the inflation basket.
The food & non-alcoholic beverages index group moved from 164.4 to 165.8, registering an increase of 0.8 percent between April and May.
The increase was attributed to the general rise in the constituent section indices, notably, sugar, jam, honey, chocolate & confectionery (1.8 percent), oils & fats (1.3 percent), mineral waters, soft drinks, fruit & veg juices (1.1 percent) and food not elsewhere classified (1.1 percent).
The communications index balanced the numbers somehow as it led the decliners.
As per a directive from telecommucations regulator for operators to slash prices, the group index recorded a decrease of 5.5 percent, from 96.4 in April to 91.2 in May.
This was due to a decline in the constituent section indices of telephone & telefax services, which went down by 6.8 percent, which was attributed to the revised mobile phone tariffs by the Botswana Telecommunication Authority, which was effected on the 1st May 2011.
The cities and towns’ inflation rate registered an increase of 0.1 of a percentage point from 8.9 percent in April to 9.0 percent in May. The rural villages’ inflation rate went up by 0.2 of a percentage point from 6.0 to 6.2 percent between April and May.
Botswana inflation target of 3-6 percent remain under threat, which means inflation will close the year higher than the targeted band.
“And while this is a global phenomenon, Botswana also faces civil servants wage increases and administered price inflation, leading to price pressures across the board. Our estimates indicate that domestic inflation will reach 9.1 percent year on year by the end of the year,” said Harward.
Despite the rise in the inflation rate, albeit small, the Bank of Botswana (BoB) maintained their accommodative stance and left the Bank Rate unchanged at 9.5 percent in their Tuesday meeting.
“They hinted that the current level of interest rates is supportive of economic activity given the constraints to fiscal stimulus. It has become apparent that the BoB is more focused on getting the economy back on track rather than containing inflationary pressures,” she said.
“We maintain our view that the bank will keep rates on hold until the end of the year, especially with the resurgence of uncertainty in global markets as the developed nations’ growth slows down and the Euro debt problems worsen.”
Investec sees domestic inflation will reach 9.1 percent year on year by the end of the year.