Prints 3.2%, within BoB’s target band
Core inflation ticked down as major utility providers suspended rate increases
Transport inflation ticked up 5.8% m/m
3 group indices remain above 6.0%
Attacks between Israel and Palestine cause concern on inflation outlook
Rate cut forecasted in 2024
Botswana’s inflation shot up by 2.0 Percentage Points (ppt) in September 2023, printing 3.2% year-on-year (y/y) from 1.2% in August. This was mainly attributed to elevated food and non-alcoholic beverages prices coupled with miscellaneous goods and services, which contributed 1.1ppt and 0.7ppt, respectively, to the headline print.
Core inflation ticked down slightly to 5.2% y/y (from 5.5% in August), supported by limited price growth from the supply side as major utility providers suspended rate increases this year. On an annual basis, 3 group indices remain above 6.0% y/y. Food and non-alcoholic beverages inflation registered 7.7% from 9.0% in August, as items such as bread and cereals (10.5% y/y), meat (8.2%) and vegetables (11.6%) remain elevated.
Transport ticks up
On a month-on-month (m/m) basis, inflation printed at 1.7%, with the largest price change recorded by the transport category. Transport inflation ticked up 5.8% m/m as the costs associated with the operation of personal transportation increased by 10.6% and the purchase of vehicles crept up by 0.6%. The higher cost of operating personal transportation was driven by an increase in pump prices for diesel (P2.59/l) and petrol (P1.40/l) effected on 13 September 2023. The adjustments, according to Botswana Energy Regulatory Authority (BERA), were based on the analysis of the movement of petroleum products prices for the month of August 2023. “Both crude oil prices and refined products prices increased in August,” BERA said adding that “the increase was mainly driven by supply-side factors such as the voluntary output cuts by Saudi Arabia that are to be extended to end of 2023”.
Oil Prices on the rise
RMB, a unit of the First National Bank Botswana (FNBB) observed that oil prices have been increasing since the mid-year mark as concerns around a slowdown in growth in China, coupled with supply cuts from OPEC+ have fuelled the price momentum. While prices were beginning to settle at levels below US$90/bbl in September, the investment bank said the recent wave of attacks between Israel and Palestine, which started on 7 October, has pushed prices higher. RMB cautioned that this could cause meaningful concern to the inflation outlook of various countries over the near term, especially if the conflict in the Middle East persists.
The pace of disinflation challenged by climate risk
FNBB expects inflation to continue trending upward over the remainder of the year, reaching 4.0% y/y by December. “With this in mind, we expect inflation to average 4.9% in 2023 (down from 12.2% registered in 2022).” Botswana’s inflation has been reducing significantly over the course of 2023, following the 14.6% y/y peak observed in August 2022, owing to reduced fuel prices. “Local price growth has also been driven down as the effect of earlier increases in administered prices continued to recede,” FNBB said noting that the pace of disinflation, however, could be challenged by potentially higher food prices owing to heightened climate risk, and its potentially negative impact on agricultural yield.
Additionally, FNBB said Botswana’s restriction on the importation of certain fresh produce will likely present an upside risk to price growth as local production continues to fall short of demand. “The recent declaration of drought adds to the possibility of further price pressure owing to lower-than-expected agricultural produce in 2023.” Furthermore, the Business Expectations Survey for June 2023 by the Bank of Botswana noted entrenched expectations for higher inflation which FNBB argued presents an upside risk to price growth.
Rate cut forecasted in 2024
With inflation remaining within the Bank of Botswana (BoB) 3-6% range objective, the Monetary Policy Committee (MPC) has maintained the Monetary Policy Rate (Rate) at 2.65%. The Central Bank adjusted its inflation expectations lower, anticipating an annual average of 5.8% this year with inflation remaining below 6.0%.
Barring any significant price changes and upward pressure from base effects in Q423, FNBB projects that the MoPR will remain unchanged through to 2024. Some experts argue that the central bank is waiting to see where inflation will be by the end of the year before any rate hike. Kgori Capital, an asset manager, forecasts inflation to rise beyond the BoB’s 6% upper bound in 1Q24 and expects a 25-50 basis points (bps) cut in Q2 2024. Standard Chartered Bank’s Head of Treasury Markets Galeboi Sennanyana also projects a cut of 50bps in the coming year.
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