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Botswana: Inflation Goes Haywire
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Mmegi/The Reporter (Gaborone)
18 July 2008
Posted to the web 18 July 2008
Brian Benza
The ever rising fuel prices have catapulted the June annual figures by a massive 2.4 percentage points to 14.5 percent from 12.1 percent, the highest to be recorded in Botswana in almost four years.
According to figures released by the Central Statistics Office (CSO) this week, the June annual inflation rate surpassed the highest-ever annual inflation figure of 14.2 percent in April 2006.
The June rate is ascribed mainly to soaring costs in the Transport index. Five group indices recorded changes of more than 1.0 percent between May and June, which include transport (8.2 percent), food (2.5 percent), housing, water, electricity, gas & other fuels (2.1 percent), furnishing, household equipment and maintenance (1.8 percent) and clothing & footwear (1.4 percent).
The month-on-month inflation rate also rose by a record 2.8 percent, the highest since January 2005.
"The Transport group index increased by 8.2 percent from 124.8 to 135.1 between the two periods. This was largely due to an increase in the constituent section indices of Transport Services and Operation & Personal Transport, which rose by 17.0 and 10.3 percent respectively," says a CSO statement.
"The rise in Transport Services section index was mainly due to an increase in minibus and taxi fares by 20 percent while long-distance Bus (on bitumen road) increased by 13.58thebe per kilometre, effective 26 May 2008.
"The increase in the Operation & Personal Transport section index was attributed to the rise in retail pump prices for both diesel and petrol by P1.35 and P0.87 per litre respectively, which were effected on the 19 June 2008."
But the Transport index is expected to propel inflation higher in coming months as bus operators threaten to halt their wheels unless they are awarded another fare increase due to unremitting fuel price rises.
Not surprisingly, food was the second major contributor to inflation last month as shortages on international markets continue to exert pressure on prices. Food prices, which contribute about 22 percent to the Consumer Price Index (CPI), are expected to further increase due to unstable exchange rates and Botswana's high dependency on imports.
In a bid to reign inflation in, monetary authorities increased the Bank Rate by 0.5 percentage points twice this year.
Economic analyst, Dr Keith Jefferies, believes interest rates may not be an effective instrument of control because inflation is fuelled by mostly exogenous factors.
In a recent economic review for the second quarter of 2008, Jefferies said although the Bank of Botswana's intention is to control second round effects to prevent inflation from moving beyond fuel and food, it was difficult to determine its effectiveness.
"Although most central banks around the world have raised interest rates in response to inflation, this might not be relevant in Botswana as only a small portion of inflation is determined here - rather than by import prices and exchange rates - and hence monetary policy is unlikely to be effective," he said. Meanwhile, the CSO statement continues: "In the month of June, the Housing, Water, Electricity, Gas & Other Fuels group index moved from 111.9 to 114.3 between May and June, an increase of 2.1 percent.
This was the result of increases of 3.4, 2.0 and 2.0 percent in the constituent section indices of Electricity, Gas & Other Fuels, Rent Paid by Tenants and Materials for Maintenance & Repairs of Dwellings respectively.
"The rise in the Electricity, Gas & Other Fuels section index was mainly attributed to the increase in retail pump price for paraffin by P1.45 per litre. The rise in the Rent Paid by Tenants section index follows a quarterly survey on private rentals.
"The Furnishing, Household Equipment and Maintenance group index registered an increase of 1.7 percent from 109.1 to 110.9 between the two months. This was due to the rise in the constituent indices of Goods & Services for Household
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Maintenances (3.2 percent), Glassware, Tableware & Household Utensils (1.7 percent), Household Textiles (1.6 percent) and Small Tools, Miscellaneous Accessories (1.4 percent) respectively," read the statement."
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