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Botswana: Inflation Heading to Double Digits
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Mmegi/The Reporter (Gaborone)
31 March 2008
Posted to the web 31 March 2008
Maungo Lebanna
The Consumer Price Index (CPI) for February was in line with our expectations at nine percent, up from 8.4 percent in January. Fuel prices, private school fees and private medical rates were the key drivers of the monthly increase, each recording changes of more than two percent.
Compared to last year, food inflation continues to soar, reaching a record high of 18.4 percent since the 1990s.
Prices of bread, cereals, meat, milk, cheese, oils, fats, and vegetables were among the chief drivers of the increase in food inflation.
Looking ahead there appears to be little respite from spiralling food inflation, as rising wheat prices will result in higher bread and cereal prices, which constitute the bulk of the food index.
In addition, high fuel prices are adding further upward pressure to inflation. The increase in fuel prices in February pushed transport inflation further outside the Bank of Botswana's new inflation target range of 4-6 percent.
We therefore expect inflation to rise to 9.5 percent in March. Given the persistent volatility in food prices, the likelihood of further fuel hikes, the recent 15 percent rise in civil servants salary, and the increase in electricity tariffs, a double digit CPI number is possible in April.
We do not anticipate the CPI returning to the 4-6 percent target band this year; however we expect inflation to peak in April and then trend lower to end the year at around 6.8 percent as pressures from food inflation moderate.
The good rains experienced this year should contribute positively to crop production. Unlike last year, we should see an improved availability of crops such as maize.
Subsequently, the price of maize and other crops should slow down. The rate of increase in food inflation has also been extraordinarily high, but going forward we do not expect a similar rate of increase.
BoB's monetary stance remains restrictive; the bank has dismissed the idea of a rate hike but has indicated that monetary easing would be considered once inflation trends lower.
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*Maungo Lebanna is an analyst at Investec Asset Management Botswana.
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