The lowered bar still looks high

It will take quite some time before the current declining inflation rate is felt on consumers’ pockets, this is the view held by economic observers.

Market watchers’ general opinion comes a week after Statistics Botswana data revealed that September inflation has declined to a record low of 5percent, down 0, 6percent in the previous month. A common economic understanding is that, a decline in inflation will have a negative impact on prices for goods and services, which in the end will positively affect disposable income for consumers. In Botswana, this is not the case.

Analysts are saying consumers must wait for some time before they can raise their glasses in appreciation of lower prices for consumables. The wait could even be longer depending on how long the central bank can manage to tame inflation within the 3-6 percent target range (which has been changed to objective by central bankers). At 5percent the current inflation is at more than three-year record low. The last time inflation reached 5percent was in November 2009 at the height of the economic recession. “Naturally, that won’t happen (decrease in prices due to declining inflation),” said Head of Research at Motswedi Securities, Garry Juma on Tuesday. “In any case, we can only see minimal adjustment, not a decrease,” he said.

An economist at one of the leading commercial banks concurs saying that any favourable impact on prices (as a result of low inflation) can only be felt if inflation remains low for one to three years, which is largely regarded as medium term. “That’s when we will start to ask why prices are still high,” said the economist, who could not be named since he does not have authority to speak to the media. Amit Bakhirta, a fund manager at IPRO Botswana also aired the same view, adding that, “we may see stability in prices going forward, but that will not be dramatic.” Consumers in Botswana, especially civil servants face challenges of declining disposable income partly because of unadjusted salaries in a long time. On the ground, it appears retailers do not consider inflation when setting prices, which suggests that consumers still have to dig deeper to fund their everyday life, amid declining inflation.

A shop manager at Pick n Pay (Gaborone), a leading South African grocery store told Botswana Guardian on Tuesday that, in most instances they don’t consider inflation when making adjustments for food prices. “It is based on our buyers and suppliers negotiations,” he said, preferring to remain anonymous. He went on to explain that in most cases, “they use prices that have been loaded from parent company. At the time of writing, BoB had not responded to the question when would consumers feel the impact of declining inflation. While analysts agree food prices and other consumables remain high, Statistics Botswana said in a statement that the current fall in inflation is due to decreasing food prices, a suggestion that analysts refuted. “Contributing to the decline on the overall annual rate was stable prices of commodities especially major components such as Transport and Food & Non-Alcoholic Beverages which dropped by 5.9 and 2.9 percentage points respectively,” said Statistics Botswana last week.

The current declining inflation is not purely organic, suggesting food prices are not necessarily the main driver of inflation as government officials suggest. “I think the decline is due to rebasing factor, that is it (inflation) was coming from a high rate of last year in the same period (September),” opined Bakhirta. In September last year inflation was 7, 1 largely because of a 50thebe price hike in fuel. BoB will cross its fingers that government would not increase administered prices, a move which will spike inflation. Furthermore, prices especially for oil will be of utmost importance for the local inflation’s outcome in the next few months. Meanwhile, it is still to be seen if the central bank’s Monetary Policy Committee (MPC) will quickly react to a declining inflation in the form of bank rate adjustment when members meet just before Christmas. BoB uses inflation targeting (which has been criticised in some quarters) to decide on bank rates adjustments. Already the bank has slashed the bank rate by 1,5 percent from  to 8,5 percent this year, on the backdrop  of declining inflation. Bakhirta stopped short of saying it will not be wise for the bank to slash bank rate now. “I think the MPC was wise not to adjust the rate in their last meeting,” he said without giving reasons. At its meeting early this month, the MPC decided to leave the rate unchanged.

It stated that the current state of the economy and assumptions on both the domestic and external economic outlook, as well as the inflation forecast, suggest that the current monetary policy stance is consistent with maintaining inflation within the bank’s 3 – 6 percent objective in the medium term. At a Budget Pitso this week, Finance and Development Planning Secretary for Economic Affairs Dr Taufila Nyamadzabo announced that government has revised its economic growth forecast for 2013 to 4,4 percent from 4, 9perent announced by minister Kenneth Matambo in February. Nyamazambo cited challenges in the global economy and unpredictable mining industry.

Prior to this development the International Monetary Fund and World Bank had already projected a slower growth. Locally, Motswedi Securities, a brokerage firm was the first to slash the forecast to 4 percent.The upper objective(of 6 percent) has not been met in more than two years ,but lady luck smiled on the central bank when inflation finally fell within the said range at this year.

Last modified on Friday, 25 October 2013 08:51

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