Alcohol price hike pushes inflation up

A recently effected price adjustment by KBL pushed up the March annual inflation rate by a modest 0.1 percentage points, figures released yesterday by Statistics Botswana (SB) show. According to the Consumer Price Index (CPI) statistics, the annual inflation rate registered a modest increase in March to 7.6 percent from 7.5 percent in the previous month largely due to a rise in alcoholic beverage prices.
On March 4, KBL increased prices of alcoholic beverages by an average five percent adding to the pressure on prices from the alcohol levy which rose to a cumulative 45 percent in October last year.From the 12 categories used in tracking changes in the CPI basket, only the alcoholic beverages and tobacco group index recorded an increase of more than one percent in March.
"Group indices were mostly stable between February and March 2013, recording movements less than 1.0 percent, except only alcoholic beverage and tobacco group index which recorded 2.3 percent.
"This was due to increases in the constituent section indices of Alcoholic Beverages (2.5 percent), and Tobacco (1.1 percent)," said the statistics agency.
 The Alcoholic beverages group index, which carries the fourth heaviest weight in the CPI, behind food; housing and water; and transport, has risen by 13 percent in the past year.
According to SB, the second highest rise of prices in March was registered in the food and non-alcoholic beverages index group, which advanced from 186 to 187.1 points, with an increase of 0.6 percent between February and March.The increase was attributed to the general increase in food prices especially mineral waters, soft drinks, fruits and vegetable juices (1.5 percent).
  The Bank of Botswana sees external inflation pressures in 2013 as 'modest' and believes that when this is combined with weak domestic demand, inflation should reach the target range towards the end of the year.However, the BoB has also been quick to point out the fragility of its forecasts.
This outcome could be adversely influenced by any unanticipated large increase in administered prices and government levies, as well as international food and oil prices increasing beyond current forecasts," the BoB said in February when announcing the continuing freeze on the bank rate at 9.5 percent.
 Already the new electricity tariffs, which kicked in early this month, are expected to temporarily push the April annual inflation further away from the BoB objective.
Although the average 10 percent tariffs adjustment is expected to add only 0.14 percent to inflation directly due to small weight in the CPI basket, there will be some second round effect as firms factor the higher electricity tariffs into their costs/pricing.
"It is encouraging to note that food prices appear to be somewhat stable and this increases prospects for inflation to fall further during the year.
"The change in the exchange rate policy will also absorb some of the impact of imported inflation.However, our worry is that this might be short-lived given the increase in grain prices on the international market mainly due to last year's draught in the US, which is believed to be the worst in half a century.
We have revised our inflation forecast and we now expect inflation to reach the Bank of Botswana target range during the third quarter of 2013 before closing the year at 5.1 percent," Motswedi Stockbrokers analyst Gary Juma has said.