Shock food price increases

MATHATISI SEBUSI

MASERU – Basotho should be prepared to spend much more on food as prices are expected to continue rising, the central bank has said. Acting Governor of Central Bank of Lesotho (CBL) Lehlomela Mohapi said this during the Monetary Policy Committee (MPC) meeting statement held on Tuesday this week at the Bank’s premises, explaining food prices are likely to escalate further due to expected low domestic harvest following excessive rainfall.

Mohapi further said the domestic inflation rate, as measured by the year-on-year percentage change in the consumer price index (CPI), rose slightly from 7.2 percent to 7.3 percent between March and April 2022. He said the key drivers were food and non-alcoholic beverages, energy and transport, which have all negatively impacted on the consumers. Increased prices this month include that of fuel, home-use paraffin, cooking oil, flour, bread, taxi fares and commercial banks’ lending rate.

The increases were published by concerned sectors including the Petroleum Fund, Road Transport Board, Lesotho Flour Mills and Blue Ribbon. Road Transport Board recently announced that effective from June 24, 2022, taxi fares will increase by 30 percent for local routes and 21.1 percent for long distance routes. Transport Board Chairperson Limema Phohlo said the increment is fueled by, among others, increased fuel and maintenance costs with the fuel pump price per litre having already exceeded a record M20.00 and paraffin for home use already just less than M3.00 lower than the price of petrol.

He said guided by Road Transport Act of 1981 the department initiated a research by specialists in the ministry to look at the state of the country’s economy before the decision to increase fares was made hence the agreement, which also averted a countrywide strike that was planned by transport operators. Lesotho Flour Mills will be increasing flour prices for all orders effective May 20, 2022 by average R300/mt.

Chief Executive Officer at Lesotho Flour Mills Joao Goncalves attributed the increment to rising prices of raw materials and packaging. This is also resulting from the ongoing conflict between Russia and Ukraine which has seen wheat supplies blocked from the region. In its turn, Blue Ribbon also informed consumers that due to the weakness of the Loti as well as other domestic factors that continue to pressure business from June 1, 2022 bread price will increase by M1.30.

Managing Director at Blue Ribbon Mpeake Sekhibane said fluctuation on currency has also impacted their costing heavily on raw materials import. Sekhibane said the mother company Premier Foods has attempted to find internal management of cost drivers but they find themselves in a position where they can no longer absorb the impact.

“As a business, we are and remain committed to, where possible, absorbing some of these costs and reducing expenses to avoid increases. It is unfortunately necessary that despite internal management of cost drivers we increase certain items to compensate for the impact and continue to produce with the same quality,” Sekhibane said. Workers’ unions are concerned about the hike in prices saying workers already cannot afford basic needs and the increases of prices will only sink them deeper into debt.

Another of their most serious concerns is that the 30 percent and 21.1 percent hike in transport fares, expected to be effective from June 24, 2022, is likely to affect workers’ production and welfare as most of them may have to walk long distances to and from work every day therefore compromising their productive capacity at work.

They say the hike is ridiculous considering that salaries have not been increased to match the cost of living and inflation, currently at 7.5 percent. Independent Democratic Union of Lesotho (IDUL) General Secretary, May Rathakane told this publication that approval of taxi fares increases by the government shows that the government does not care for the people, especially low income earners like factory and domestic workers. He said these groups already struggle to make ends meet due to the low wages they earn and increasing taxi fares will only worsen their situation.

Rathakane said even if wages are increased, the increment will still not match the 30 percent hike and workers will only be able to pay for transport and nothing else. He said there should at least be an explanation on how the 30 percent hike was reached and where it leaves other sectors. The minimum wage for a factory worker is M2 200 per month. A taxi fare at current prices is M8.50 for a mini taxi and M9 for a 4+1.

A factory worker working five days a week spends around M350 on transport only for 20 days. After the hike, a factory worker using a taxi will pay M22 per day, M110 for five days, which all translates to M440 for 20 days, which is clearly more than 20 percent of the average wage in the sector. Workers that use 4+1 to commute to work will spend M24 per day, M120 for five days which translates to M480 for 20 days, about a quarter of their average monthly income.

While the global macroeconomic environment somewhat improved during the review period, the MPC says the vulnerabilities remain, adding that global financial markets remain mired in uncertainty. The Central Bank has also noted that while the domestic economy registered a moderate growth in the first quarter of 2022 compared to a relatively higher growth in the preceding quarter, in line with the rest of the world, domestic inflationary pressures remain high.

The MPC having considered the Net International Reserve (NIR) developments and outlook, regional inflation and interest rate outlook, domestic economic conditions and the global economic outlook, has decided to: i. Revise downwards the current NIR target floor of US$820 million (about M12,3 billion) to US$810 million.

It explained that at this level, the NIR target will continue to support broader macroeconomic stability and maintain the peg between the loti and the South African rand. The bank also announced an increase of the CBL Rate from 4.25 percent per annum to 4.75 percent per annum. “The rate, set at this level, will ensure that the domestic cost of funds remains aligned with the rest of the region,” explained the MPC statement.