Inflation could drop in the short term

Photo credit: Gary Ashworth

Inflation could drop below its current historic level of 2.4 percent in the short term, as the Bank of Botswana expects fuel prices to remain unchanged in the last quarter of the year.

Inflation, or the rate of increase in prices, fell to what most data sets suggest is an all-time low of 2.4 percent in October, helped by low imported inflation, restrained demand in the economy and stable administered prices. 

The Bank of Botswana (BoB) said in the absence of a fuel price increase in the remainder of 2019, the base effects stemming from the increase in fuel prices in the last quarter of 2018 will contribute to inflation trending even lower in the short term. Base effects are distortions in monthly inflation resulting from abnormally high or low levels of inflation in the corresponding month a year before. 

Fuel prices rose in October and November last year, adding approximately 0.9 percentage points to inflation in the fourth quarter of 2018. The government responded by channelling more funds to its arrears with oil companies and building up the National Petroleum Fund, which acts as a buffer against fuel price shocks. 

Thus far this year, the government has held fuel prices steady, with no adjustments, thus contributing to low inflation.  In its October Monetary Policy Report released recently, the central bank also said further downward pressure on local inflation in the fourth quarter would come from lower international food and oil prices. 

The recent downward revision of South African inflation, from where Botswana imports the majority of its goods, will also help lower inflation in the short term, the central bank said.


3 months ago

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