Category Archives: Inflation

The annual Namibian Inflation rate slowed marginally to 4.0% in July, following the 4.1% y/y increase in June. The prices in the overall NCPI basket increased by 0.2% m/m. On a year-on-year basis, the overall prices of seven of the twelve basket categories rose at a quicker rate in July than in June, while three categories experienced slower rates of inflation and two categories posted steady inflation. Prices for goods increased 5.4% y/y while prices for services increased by 2.2% y/y in July.

The transport and food categories were the largest contributors to annual inflation, making up 1.4 and 1.1 percentage points respectively. These were the main drivers of inflation in July. Food prices fell 0.4% m/m but rose 6.1% y/y, with all sub-categories except one increasing on an annual basis. Despite a bumper harvest for some vegetable products, Namibia’s reliance on South Africa for food imports is reflected in the increased prices of meat, oil and fats, and fruit. Increased transport prices have resulted from the recent upward trend in global oil prices and the depreciation of the Namibian dollar against the US dollar, making imports more expensive. 

Alcoholic beverages and tobacco prices contributed 0.3 points to annual inflation, as they did in June, increasing by 0.8% m/m and 2.5% y/y in July. The miscellaneous category also contributed 0.3 percentage points to inflation alongside transport and housing, water and electricity. Driven by higher fuel prices, transport costs have increased by 1.0% m/m and 10.6% y/y in July.

The 4.0% y/y increase in annual inflation is towards the upper end of IJG’s inflation forecast for the year. The main driver of inflation in the last couple of months has been food inflation which has been averaging 6.2% y/y since the beginning of the year. While risks remain to the upside, we see these as muted in the short-term in what is currently a very accommodative global monetary environment. Higher oil prices remain the largest risk in the short-term, while domestic and South African fiscal deterioration pose medium-term risks as debt levels increase unchecked, eating into the already limited productive portion of expenditure. IJG’s inflation model currently forecasts an average inflation rate of 3.7% y/y in 2021 and in 2022. Given that economic growth is expected to be low, and that inflation will likely remain muted, we expect monetary policy to remain accommodative over the short- to medium-term. 

The annual Namibian inflation rate accelerated to 4.1% in June, following the 3.8% y/y uptick in prices in May. The prices in the overall NCPI basket increased by 0.5% m/m. On a year-on-year basis, overall prices in three of the twelve basket categories rose at a quicker rate in June than in May, while five categories experienced slower rates of inflation and four categories posted steady inflation. Prices for goods increased 5.5% y/y while prices for services accelerated to 2.1% y/y in June, compared to the 1.3% y/y increase recorded in May.

The food and transport categories were the largest contributors to annual inflation, making up 1.3 percentage points each of the annual inflation rate and together were the main drivers of inflation in June. Transport prices rose 2.5% m/m and 9.6% y/y. The Road User Levy increased by seven cents per litre in June, contributing to higher fuel prices, which have already been on the rise from the low base a year ago. The Rand also weakened against the US Dollar during June, which further elevated fuel prices.

Food prices rose 0.3% m/m and 7.3% y/y, with prices in all thirteen sub-categories increasing on an annual basis. Namibia is relatively dependant on South Africa for food imports, which would have experienced a spillover effect from the increased transport costs, as well as near all-time high fuel costs in South Africa. The largest increases were witnessed in the oils and fats sub-category, which recorded a 16.7% y/y increase, followed by meat, which posted a 16.0% y/y increase in prices and vegetables, which rose 6.8% y/y. 

Alcoholic beverages and tobacco prices contributed 0.3 points to the annual inflation rate, increasing by 0.4% m/m and 2.5% y/y in June. The miscellaneous category also contributed 0.3 points to the annual inflation rate, although decreasing by 0.2% m/m, the category rose posted a price increase of 6.4% y/y.

The 4.1% y/y increase in annual inflation is at the upper-end of IJG’s inflation forecast for the year, as we expect inflation to average 3.8% y/y in both 2021 and 2022. Rising inflation rates have also been witnessed recently in South Africa and, as such, the South African Reserve Bank imposing rate hikes this year is not an impossibility, however, monetary policy is expected to remain accommodative. The Bank of Namibia is expected to follow suit to whichever strategy the SARB pursues. Overall, we expect the annual inflation rate to remain near the mid-point of the SARB’s inflation range for the rest of the year.

The Namibian annual inflation rate slowed to 3.8% y/y in May, with prices in the overall NCPI basket increasing by 0.3% m/m. On a year-on-year basis, overall prices in three of the twelve basket categories rose at a quicker rate in May than in April, while six of the basket categories recorded slower rates of inflation, and three of the basket categories posted steady inflation. Prices for goods increased by 5.6% y/y while prices for services rose by 1.3% y/y.

Food & non-alcoholic beverages, the second-largest basket item by weighting, continued to be the largest contributor to annual inflation, accounting for 1.2 percentage points of the total 3.8% inflation rate in May. Prices in this category increased by 0.7% m/m and 6.6% y/y. Prices in all thirteen of the sub-categories recorded increases on an annual basis, with five recording slower increases. The largest increases were observed in the prices of meat which increased by 16.9% y/y, fruit which rose by 8.5% y/y and oils and fats, which climbed by 13.5% y/y, significantly higher than the 7.5% y/y increase in April. This is the fifth consecutive month the prices of fruits subcategory recorded a slower annual price increase.

Transport was the second-largest contributor, accounting for 1.0 percentage points of annual inflation in May. Prices in the category rose 0.6% m/m and 7.3% y/y, fuelled by the operation of personal transport equipment sub-category, which rose 0.1% m/m and 13.0% y/y. This has been the result of several hikes in local fuel prices since the start of the year, due to a recovery in global oil prices from the record lows observed a year ago. Due to base effects, the public transportation services sub-category notably recorded price declines 11.6% y/y.

The alcoholic beverages and tobacco basket item was the third-largest contributor to the annual inflation rate in May, with prices increasing by 3.5% y/y. On a monthly basis, prices in this basket item fell by 0.2%. The alcoholic beverages sub-category recorded a price decrease of 0.2% m/m and 2.5% y/y. Tobacco prices rose 0.1% m/m, and 7.9% y/y.

The housing and utilities and miscellaneous categories accounted for 0.35 and 0.36 percentage points, respectively, of the total annual inflation rate in May. Price inflation for housing and utilities remained unchanged on a monthly basis, for the fourth month in a row, but rose 1.3% y/y. The regular maintenance and repair of dwellings subcategory recorded an increase in prices of 7.7% y/y. Prices in the electricity, gas and other fuels subcategory rose 1.0% y/y, while the annual inflation for rental payments stood at 1.3% y/y.

Namibia’s inflation remains relatively contained, with May recording disinflation for the first time since November last year. The current surge in Covid-19 cases in Namibia poses a concern for the economy. Overall, lower business and consumer confidence is expected to translate into muted economic growth, which should place a cap on inflation levels for the rest of the year. IJG’s inflation model forecasts an average inflation rate of 3.6% y/y in both 2021 and 2022. As uncertainty grows with the rising infections, it is unlikely that interest rates will change from 3.5% at the next SARB monetary policy committee meeting on the 22^nd of July, with the Bank of Namibia likely to follow by maintaining its rate at 3.75%.