Inflation woes: More misery for consumers

• BoB anticipates private school fees increase
• Fuel prices to go up as well, inflation to deepen further
• Inflation will revert to 3-6% objective range in Q3 2022

BAKANG TIRO

editors@thepatriot.co.bw

The central bank, Bank of Botswana (BoB), forecasts that inflation will deepen further above the objective range of 3 to 6 percent, fuelled further by school fees and fuel prices hikes.

The Director of Research and Stability at BoB Dr Lesedi Senatla said the inflation will revert to the objective range in the third quarter of 2022.

Private school fees and fuel prices are expected to go up in early 2022; thereby adding further inflationary pressures.

“These developments are likely to come into effect on the first quarter of 2022 and therefore it is not likely that the inflation can revert to the objective range in the second quarter. The fuel prices will likely be adjusted in line with the international trends in oil prices as they are going up as well,” he said.

Dr Senatla said the economy is likely to be strained due to the new Omicron Covid-19 variant, which has been detected in Botswana. However he is confident that economic recovery interventions plans put in place such as robust vaccination rollout can keep the economy afloat.

BoB Governor Moses Pelaelo said the successful rollout of Covid-19 vaccine is very crucial for economic recovery. He noted that with a new Omicron variant detected, it is important to shift the economic and investment policies to adjust them in recognition of the pandemic and its impact.

“The initiatives such Smart Botswana is very key as digitalisation is one of the elements that can boost the economy. If we increase internet connectivity and make it strong, this can build capacity and bring efficiency in the economy. We also need structural reforms on the economy such as coming up with export and industrial policies with ideas to diversify the export revenue pools,” said Pelaelo.

Meanwhile, Pelaelo said inflation rose from 8.4 percent in September to 8.8 percent in October 2021, remaining above the upper bound of bank’s medium-term objective range of 3-6 percent.

 “The latest increase in inflation mainly reflects the upward adjustment of domestic fuel prices in October 2021. However, inflation is projected to revert to within the objective range in the third quarter of 2022, mainly on account of the dissipating impact of the upward adjustment, during 2021, of value added tax (VAT) and administered prices from the inflation calculation; which altogether contributed 5.9 percentage points to the current level of headline inflation,” buttressed Pelaelo.

According to Pelalelo, overall risks to the inflation outlook are assessed to be skewed to the upside. “These include the potential increase in the international commodity prices beyond current forecasts; persistence of supply and logistical constraints due to lags in production; possible maintenance of travel restrictions and other COVID-19 containment measures; domestic risk factors relating to the regular annual price adjustments; as well as the second-round effects of the recent increases  in administered prices and the inflation expectations that could lead to generalized higher price adjustments,” stated Pelaelo.

Furthermore, he said the aggressive action by government through the Economic Recovery and Transformation Plan (ERTP) and major central banks to bolster aggregate demand, as well as the successful rollout of the COVID-19 vaccination programmes, could add pressures to inflation.

Bank of Botswana’s Monetary Policy Committee (MPC) has decided to maintain the bank rate at 3.75% as part of creating accommodative monetary environment so as to spur economic activity.