Inflation to remain contained

Botswana inflation measured 7.5 percent year-on-year in February, unchanged from January’s CPI figure. This reflects the change in the crawling peg of the exchange rate, as the Pula is now less sensitive to changes in the South African Rand exchange rate. Month-on-month food inflation, the component with biggest weighting in the index, increased by 0.4 percent and year-on-year the rate is 7.3 percent higher.

Domestic food inflationary pressures came from month-on-month increases of 0.5 percent each for oils and fats, as well as sugar, jam, honey, chocolate  and confectionery and increases in food not otherwise classified. Imported food inflation has temporarily eased, remaining at 7.6 percent month-on-month, removing pressure from the overall inflation.

Global corn prices have moderated, with better than expected harvests especially in South America. Month-on-month, CPI for alcohol and transport was 0.1 percent in each category. We do not anticipate significant monthly changes in alcohol for the next few months, barring another increase in  taxes.

Transport still remains a concern. Oil prices increased by 6 percent from the beginning of the year to the end of February, but this move was neutralised by the moves in the Pula against the dollar. In February the currency depreciated by only 1 percent versus the 2.7 percent against the dollar in January. Given that oil prices have dropped significantly since end of February, we do not anticipate any fuel price hikes in the next month.

Other notable increases were month-on-month moves in furniture and health, which both increased by 0.3 percent. Recreation and Culture, as well as Restaurant and Hotels each increased 0.2 percent. The All-tradable inflation rate declined by 0.1 percent month-on-month, while the domestic tradable inflation decreased by 0.3 percent in February 2013.

The Ministry of Minerals, Energy and Water Resources announced that electricity tariffs will be increasing by 7 percent for domestic and small business customers, 10 percent for medium business customers, 10 percent for large business customers, and 20 percent for government installations, effective on the 1st of April 2013.

This will directly impact the pockets of the consumers and also filter through indirectly via food and manufactured goods prices. We anticipate that inflation will remain contained in the next few months, ranging from 7.6 percent - 7.8 percent till June 2013. We believe the Central Bank will see no added benefit in changing the bank rate, and therefore we expect rates to remain constant in the medium term.

*Hatendi is an analyst at Investec Asset Management, an independently managed subsidiary of Investec Group.