Inflation forecast to speed up

The Bank of Botswana (BoB) expects inflation to quicken and cross the three percent mark in the second quarter of next year due to recent increases in postal tariffs, public transport fares and fuel prices.

The central bank’s previous forecasts issued throughout the year had indicated that inflation would breach the three percent mark in the third quarter of 2021. Inflation has spent the year at historic lows, including a record 0.9% in June and July, largely on low domestic pressures and benign external prices.

Last week, the BoB changed its tune saying inflation would accelerate and return to the medium-term objective range of three to six percent sooner than expected.

“We had indicated that inflation is forecast to revert to the objective range in the third quarter, but we have since had new information, developments that we have taken into account,” BoB director of research and financial stability, Tshokologo Kganetsano told BusinessWeek at a briefing.

“We have had an increase in public transport fares, domestic fuel prices, and postal office tariffs.

“In addition to that, our forecasts take into account what’s happening in the international environment, which relates to international oil prices, food prices and trading partner inflation.

“With regard to international oil prices, we have seen a slight downward revision (SDR), while we have seen an upward revision in food prices and a slight downward revision in trading partner inflation in South Africa.

“Inflation in SDR countries has been revised upwards.

“The net result is that we are expecting these factors to contribute to an increase in inflation.”

The BoB estimates that the public transport fare increase added 0.7 percentage points to inflation in September, while the fuel price review added 0.3 percentage points to inflation in October. The increase in postal tariffs is expected to have added 0.04 percentage points to inflation.

Analysts expect inflation to strengthen next year on the back of the expected increase in VAT from 12% to possibly 14%, while the Botswana Housing Corporation also plans to increase its rentals by up to 300% in a phased manner starting from April. The Botswana Power Corporation has also been awarded a five percent tariff increase for next year while civil servants will be pressing for a wage adjustment.