Inflation only expected to slow next year
The last two months have seen inflation shooting up and even breaching the Bank of Botswana’s upper bound of the medium-term objective range of 3- 6 percent.
In a recent update to the media, the central bank’s Governor, Moses Pelaelo, said they only expect inflation to revert into the medium-term objective range in the second quarter of 2022.
In April, inflation shot to 5.6 percent before going up further in May to 6.2 percent.
“The increase in inflation in May mainly reflects second-round effects of the recent upward adjustments in administered prices. However, inflation is projected to revert to within the objective range in the second quarter of 2022,” said the Governor.
Head of Research at Motswedi Securities, Garry Juma, revealed they also expect inflation to keep rising this year mainly due to other pressures such as tax hikes and various levies introduced in April this year.
He said since the changes in taxes were a once-off thing, inflation is expected to slow down next year during the same period.
He, however, cautioned that the effects of these pressures will continue to be felt this year, adding this will likely hurt the transport sector which could increase taxi and bus fares.
According to information recently availed by Statistics Botswana (SB), the main drivers to the May 2021 annual inflation rate were: transport at 2.2 percent, housing, water, electricity, gas & other fuels at 1.1 percent.
Food and non-alcoholic beverages, miscellaneous goods and services, and alcoholic beverages and tobacco which were also main drivers of inflation in May rose by 0.9 percent, 0.5 percent, and 0.5 percent respectively.
In contrast, it has been observed that the inflation rates for regions between April 2021 and May 2021 indicate that the cities and towns inflation rate rose by 0.6 of a percentage point, from 5.5 percent in April to 6.1 percent in May.
For the urban villages, the inflation rate was at 6.5 percent in May, also showing an increase of 0.6 of a percentage point on the April rate of 5.9 percent
In his update, Pelaelo said overall risks to the inflation outlook are assessed to be tilted upwards.
“These risks include the potential for an increase in international commodity prices beyond current forecasts; persistence of supply constraints due to possible maintenance of travel restrictions and lockdowns,” he said.
Other risks include domestically based risk factors relating to second-round effects of the recent increases in administered prices that could lead to generalized higher prices.
Moreover, the Governor said aggressive action by governments and major central banks to bolster comprehensive demand and the successful rollout of the Covid-19 vaccination programmes could also add pressure to inflation.