Consumers’ disposable income under threat
Inflation, which recently shot above the central bank’s short to medium target, is expected to continue draining the consumer’s buying power.
Analyst at Motswedi Securities Garry Juma has warned that excess incomes will be severely depleted in the coming months.
“Despite the rise in inflation, we expect the Central Bank to maintain an accommodative monetary policy to support economic growth. Meanwhile, disposable income will remain under pressure due to the increase in inflation,” Juma said.
He highlighted that the increase in May inflation is in line with expectations, although it’s largely transitory following the increase in VAT, fuel levy and other administered prices early this year.
“We however predict that these effects will dissipate towards Q3- Q4, as their effects fall off from the inflation calculation,” Juma said.
Statistics Botswana last week announced that the country’s annual inflation rate rose to 6.2 percent in May 2021, an increase of 0.6 of a percentage point on the April 2021 rate of 5.6 percent.
According to Statistics Botswana the main drivers to the May 2021 annual inflation rates were transport, housing, water, electricity, gas and other fuels, food and non- alcoholic beverages, miscellaneous goods and services and alcoholic beverages and tobacco.
Botswana central bank has announced a decision to maintain the country’s bank rate at 3.75 percent. Meanwhile the Bank of Botswana’s ( BoB) monetary policy committee has decided to continue with an accommodative monetary policy stance.
“The bank stands ready to respond appropriately as conditions dictate,” BoB Governor Moses Pelaelo said. The Monetary Policy Committee ( MPC) has projected that the economy will operate below full capacity in the short to medium term and not cause any inflationary pressures going forward.
“The projected increase in inflation in the short term is primarily due to transitory supply- side factors that, except for second- round effects, would not normally attract monetary policy response,” Pelaelo said.
He said this includes accommodative monetary conditions, improvements in water and electricity supply, reforms to further improve the business environment and government interventions against COVID- 19, including vaccine rollouts, and the implementation of ERTP and Industry Support Facility.