If it feels like the price of everything you buy has been soaring, that’s because it has—even bankers everywhere worry about the danger of inflation. Botswana’s annual inflation has hit a new record peak as prices for things people need in the pandemic keep surging, according to official figures.
Inflation’s Effect on the Economy and You
Inflation means you have to pay more for the same goods and services, but if your income does not keep pace with inflation, your buying power declines. Over time, inflation increases your cost of living. If the inflation rate is high enough, it hurts the economy.
Every month, the Statistics Botswana releases year-on-year inflation data, measured by CPI for the previous month. The September CPI – inflation is 3.1 percent on an annualized basis which means as compared to September 2019 your real income this year stands eroded at least this much. Mind you, this erosion in your income is on top of what your employer has already done due to Covid-19 pressure. The income loss on account of the pandemic is generally believed to be 20-40 percent, if you are not amongst those unfortunate ones who have been benched out.
Let’s return to inflation. The price of the stuff we are buying is rising much faster, while the stuff we are no longer buying has been falling, but still counts for the figures.
Get the full Statistics Botswana Consumer Price Index September 2020 report here
Economists will be relieved that the laws of supply and demand are still working, at a time when so much in the discipline is in doubt. But for investors it hangs a veil over the outlook for perhaps the single most important issue for the markets: whether we are headed for a future of inflation, deflation or a continuation of the past decade’s lacklustre price rises.
The pandemic provided inflationary pressure by restricting supply, so when demand rose—for example, for fuel as the lockdown eased—prices rose sharply. The pandemic also creates deflationary pressure, hitting demand as people socially distance, leading to job losses and corporate cutbacks.
Lingering effects from the pandemic could mean less need for travel and tourism workers for years, while those who have been unemployed lose skills.
Other economists are also concerned that commercial property will suffer in the long run from the shift to home working and online shopping, again leaving many workers to find new roles.
Maybe the government will deftly manage its way through the virus and the economy, by providing another relief when needed and pulling back just the right amount to prevent inflation from picking up too much. Much more likely is that it goes wrong and we end up with too much or too little relief fund. The test of that will be in how much inflation we actually get, and which parts of the economy feel it most.
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