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Low fuel prices lead to another inflation target breach

November’s year-on-year headline consumer price inflation (CPI) recorded yet another drop to 2.9% – 0.2 percentage points lower than October’s rate of 3.1%. This is also lower than our expectations of an unchanged inflation rate m/m. On a year-on-year basis, CPI is significantly lower than the 4.3% printed in November 2014. This larger than expected drop is due low local fuel prices, combined with lacklustre domestic demand, which exerted greater downward pressures on prices than we had anticipated. This is, however, in line with recent global trends. Inflation has now printed below the 3% bottom band of the inflation target range for four times this year.

Transport, the second biggest category in the inflation basket accounting for approximately 19%, fell by 7.0% y/y, decelerating further from the 6.5%-drop recorded in October. Local fuel prices continue to decline in line with the international oil price and was to a large extent cushioned by the National Petroleum levy, which aims to protect local consumers from the volatility of international oil prices.

In September, retail pump prices of petrol, diesel and paraffin were all reduced by 15 thebe, 40 thebe and 40 thebe respectively. The increase in the Transport deflation was as a result of this reduction as it filtered into the inflation numbers. More recently in December, there was another decrease in local fuel prices and we expect this to exert further downward pressure on Transport inflation, as well as overall CPI. Since this reduction, international Brent Crude Oil prices have come under renewed pressure and fell a further 16.0%, giving yet more room for another reduction in local fuel if prices stabilise around these levels for some time. International oil supply continues to remain stubbornly strong with both OPEC and non-OPEC producers maximising production. Furthermore, with Iran coming into the picture, things are likely to get worse before they can get better as far as the oil price is concerned.

Other components of the CPI basket were generally stable over the past month, recording positive changes of less than 1%. The biggest item in the basket – Food, with a weighting of approximately 22% – has been surprisingly absent among the main contributors to inflation over the year. It recorded a 0.9% increase in prices over the 12 months to November. The Housing, Water, Electricity Gas & Other fuels category recorded the biggest rate of price increase over the 12 months at 9.5%, mostly driven by increase in the Water supply category which was up 26% over the year.

Given the reduction in fuel costs earlier in the month and the delayed effect of the local and regional draught experienced in trickling down into the numbers, we believe the annual inflation rate in December will remain below the 3% bottom band. The favourable exchange rate between the pula and the rand, which limits the extent to which we can import the increasing food inflation from South Africa, will also have a cooling effect on CPI. Inflation for the year to date has averaged 3.0% and we believe this level will be maintained for the full 12 months of 2015.

There are a number of risks to this outlook. On the upside, we believe it will be driven by food inflation and a possible increase in the alcohol levy this December. On the downside, the main driver will be the likelihood of another decline in fuel prices given the continued plunging of international oil prices. Waning local demand, as indicated by the reduction in core inflation which registered a 0.3 percentage decrease to 4.7% from the previous month, is also expected to keep pressures on prices within check.

Against this background, we believe that propelling economic growth remains the primary objective of the central bank. We are therefore convinced that the monetary policy will remain accommodative for the foreseeable future. We do not believe that the central bank will reduce rates any further, as the recent reductions have not really propelled credit growth due to other structural hindrances.

Tshephang Loeto is Analyst, Investec Asset Management

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China’s GDP expands 3% in 2022 despite various pressures

2nd February 2023
China’s Gross Domestic Product (GDP) expanded by 3% year-on-year to 121.02 trillion yuan ($17.93 trillion) in 2022 despite being mired in various growth pressures, according to data from the National Bureau Statistics.

The annual growth rate beat a median economist forecast of 2.8% as polled by Reuters. The country’s fourth-quarter GDP growth of 2.9% also surpassed expectations for a 1.8% increase.

In 2022, the Chinese economy encountered more difficulties and challenges than was expected amid a complex domestic and international situation. However, NBS said economic growth stabilized after various measures were taken to shore up growth.

Industrial output rose 3.6% in 2022 over the previous year, while retail sales slightly shrank by 0.2% data show that fixed-asset investment increased 5.1% over 2021, with a 9.1% hike in manufacturing investment but a 10% fall in property investment.

China created 12.06 million new jobs in urban regions throughout the year, surpassing its annual target of 11 million, and officials have stressed the importance of continuing an employment-first policy in 2023.

Meanwhile, China tourism market is a step closer to robust recovery. Tourism operators are in high spirits because the market saw a good chance of a robust recovery during the Spring Festival holiday amid relaxed COVID-19 travel policies.

On January 27, the last day of the seven-day break, the Ministry of Culture and Tourism published an encouraging performance report of the tourism market. It said that domestic destinations and attractions received 308 million visits, up 23.1% year-on-year. The number is roughly 88.6% of that in 2019, they year before the pandemic hit.

According to the report, tourism-related revenue generated during the seven-day period was about 375.8 billion yuan ($55.41 billion), a year-on-year rise of 30%. The revenue was about 73% of that in 2019, the Ministry said.

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Jewellery manufacturing plant to create over 100 jobs

30th January 2023

The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.

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Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

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