Category Archives: Inflation

The Namibian annual inflation rate slowed to 3.6% y/y in July, following the 3.9% y/y increase in prices recorded in June. Prices increased by 0.2% m/m, compared to the overall basket price increase of 0.1% m/m in June. Overall, prices in six of the basket categories rose at a faster annual rate than in July, prices in five categories rose at a slower annual rate and one category recorded steady inflation rates. Prices for goods rose by 3.1% y/y while prices for services rose by 4.4%.

Transport accounted for 0.9% of the total 3.6% annual inflation recorded in July, making it the largest contributor to annual inflation for the month. Prices for the transport basket rose 0.5% m/m and 6.9% y/y during the month. The purchase of vehicles subcategory saw price increases of 0.6% m/m and 3.6% y/y in July, while the operation of transport equipment subcategory recorded price increases of 0.7% m/m and 4.9% y/y. Although global oil prices have declined in the last few months, the Ministry of Mines and Energy decided to keep fuel pump prices unchanged for July in order to strengthen its financial capacity to subsidise possible under-recoveries in future.

The Housing and utilities category, the largest weighting in the CPI basket, was the second largest contributor to annual inflation, accounting for 0.6% of the 3.6% annual inflation rate. Housing and utility costs increased by 1.0% m/m and 2.2% y/y. The upward movement on a month-on-month basis resulted from an increase in prices for the electricity, gas and other fuels sub-component. Prices of this subcategory rose 5.6% m/m and 1.6% y/y. Water supply, sewage service and refuse collection recorded an increase of 2.2% m/m as a result of the 5% increase in water tariffs effective from 1 July 2019, announced by the City of Windhoek.

Food & non-alcoholic beverages, the second largest basket item by weighting, was the third largest contributor to annual inflation, accounting for 0.6% of the 3.6% annual inflation rate. Prices in this category decreased by 0.6% m/m, but increased by 3.4% y/y. Prices in nine of the thirteen sub-categories recorded increases on annual basis, with the largest increases being observed in the prices of fruits, sugar and confectionaries and vegetables.

Zonal data shows that on a monthly basis prices declined by 0.1% in the central zone 2 while rising elsewhere in the country. On an annual basis the Windhoek and surrounding area, in zone 2, recorded the lowest inflation rate at 3.0% in July, with the mixed zone 3 covering the south, east and west of the country recording the highest rate of inflation at 5.1% y/y. Inflation in zone 1 (Northern region) moderated to 3.2% y/y.

The Namibian annual inflation rate of 3.6% y/y continues trending lower than neighbouring South Africa’s June figure of 4.5%. As the Namibian economy is projected to remain weak in 2019, coupled with slowing inflation since the beginning of the year, the Bank of Namibia (BoN) has this week taken the decision to cut the repo rate by 25 basis points to 6.50%. IJG’s inflation model forecasts an average inflation of 3.8% y/y in 2019. The largest upside risk to this forecast is higher transport and food costs.

The Namibian annual inflation rate moderated to 3.9% y/y in June, following the 4.1% y/y increase in prices recorded in May. Prices increased by 0.1% m/m, compared to the overall basket price decrease of 0.1% m/m in May. Overall, prices in four of the basket categories rose at a faster annual rate than in May, prices in five categories rose at a slower annual rate and three categories recorded steady inflation rates. Prices for goods rose by 3.4% y/y in June, while prices for services rose by 4.7%.

Transport accounted for 1.0 of the total 3.9% annual inflation recorded in June, making it the largest contributor to annual inflation for the month. Prices in the transport basket rose 1.1% m/m and 7.0% y/y. The purchase of vehicles subcategory saw price decreases of 0.5% m/m and 3.6% y/y. The operation transport equipment subcategory recorded price increases of 2.0% m/m and 5.0% y/y. The Ministry of Mines and Energy announced an increase in fuel pump prices of 30 c/l on all controlled products at the beginning of June.

In order to stabilise fuel prices, the Ministry decided not to pass on over-recoveries to the consumer, and kept pump prices unchanged. Brent Crude oil prices increased by 3.2% during June, reaching US$66.55 per barrel at the end of the month and the National Energy Fund saw it prudent to strengthen its financial position given the potential risks of further increases in the Brent Crude prices, citing political tension between USA and Iran specifically.

Alcohol and tobacco prices were flat on a month-on-month basis, but increased 5.5% y/y. The upward movement year-on-year resulted from increases in prices for the alcoholic beverages sub-component. Prices of alcoholic beverages, decreased by 0.2% m/m but increased by 7.9% y/y. However, tobacco prices recorded an increase of 0.8% m/m but decreased by 4.7% y/y.

Food & non-alcoholic beverages, the second largest basket item by weighting, was the second largest contributor to annual inflation, accounting for 0.7 of the 3.9% annual inflation rate. Prices in this category decreased by 0.4% m/m but rose by 3.9% y/y. Prices in ten of the thirteen sub-categories recorded increases on annual basis, with the largest increases being observed in the prices of bread and cereals, and fruits and vegetables.

The increase on an annual basis is likely of the second-round effects of increased transport prices which has filtered through to food prices, coupled with poor rainfall during Namibia’s rainy season that affects local food production.

Zonal data shows that on a monthly basis prices were flat in the central zone 2 while rising elsewhere in the country. On an annual basis the northern regions, in zone 1, recorded the lowest inflation rate at 3.5%, with the mixed zone 3 covering the south, east and west of the country recording the highest rate of inflation at 4.9%. Inflation in zone 2 (Windhoek and surrounding) moderated to 3.7% y/y.

The Namibian annual inflation rate of 3.9% y/y for June is lower than that of neighbouring South Africa’s 4.5% y/y for May. South Africa is yet to announce the June inflation rate, but thus far inflation outcome has been within the 3-6% inflation target. Due to a deteriorating growth outlook for South Africa, as well as the SARB’s latest inflation forecasts, we expect the SARB’s MPC to announce a 25bp rate cute later this week. We believe that the more dovish outlook by central banks in advanced economies gives the SARB enough room to cut rates, with the Bank of Namibia likely to follow suit at its next MPC meeting in August.  IJG’s inflation model forecasts an average inflation of 3.9% y/y in 2019. The largest upside risk to this forecast, is higher transport and food costs and the upper band of 4.3% currently looks more likely.

The Namibian annual inflation rate slowed to 4.1% y/y in April, from 4.5% in March. On a month-on-month basis prices decreased by 0.1%, following the 0.4% m/m increase in April. Overall, prices in only two of the basket categories rose at a faster annual rate than in April, price in five categories rose at a slower annual rate and five categories recorded steady inflation rates. Prices for goods rose by 3.7% y/y in May, while prices for services grew by 4.6% y/y.

The transport basket was the largest contributor to annual inflation in May. Prices in the transport basket rose 0.8% m/m and 7.6% y/y during the month, reflecting the increase in fuel prices and taxi fares respectively. The cost of purchasing motor vehicles dropped by 1.0% m/m in May, with annual growth in vehicle prices recorded subdued growth of 4.1%. The cost of public transportation services has risen by 20.0% when compared to May last year, due to the increase in taxi fares in September. The operation of personal transport equipment, largely made up of fuel expenses, costs 1.9% more than in April, and 5.7% more than in May 2018.

Food and non-alcoholic beverages prices decreased by 0.3% m/m, although this basket of goods costs 4.4% more than it did last year. Despite this relatively subdued rate of annual inflation and contraction on a monthly basis, this basket category made up the second largest portion of annual inflation. The meat prices subcategory recorded price decreases of 1.7% m/m and 0.4% y/y, meaning that meat is cheaper on average than it was last month and in May last year. The decline in meat prices is not expected to last however, as it is largely driven by high supply of animals as farmers slaughter more during the drought. Restocking farms in the future will likely lead to upward pressure on meat prices. Fish prices saw even larger decrease in May, recording deflation of 5.0% m/m and 1.4% y/y.

Alcohol and tobacco prices decreased by 1.2% in May with annual price inflation in this basket category slowing to 5.5% from 7.5% in April. Tobacco prices recorded a decrease of 7.8% m/m and 3.4% y/y and thereby caused the slowdown in inflation in the overall category. This is very puzzling and no explanation for this decrease in prices is given by the NSA in its bulletin. Market dynamics have seen above average increases in the prices of tobacco products in recent years in order to maintain revenues as cigarette use declines. Prices for alcoholic beverages continued their upward trend in May, recording inflation of 0.3% m/m and 7.6% y/y.

The Namibia Statistics Agency (NSA) released regional CPI data for Namibia for the first time in April, grouping the country into three zones, based on the then Central Bureau of Statistics’ (CBS) 2005 grouping. Zone 1 consists of regions in the northern part of the country, namely Kavango East, Kavango West, Kunene, Ohangwena, Omusati, Oshana, Oshikoto, Otjozondjupa and Zambezi. Zone 2 covers the Khomas region and Zone 3 covers the remaining //Karas, Erongo, Hardap, and Omaheke regions. This zonal data shows that on a monthly basis prices decreased in the central zone 2 while rising elsewhere in the country. On an annual basis the northern regions, in zone 1, recorded the lowest inflation rate at 3.3%, with the mixed zone 3 covering the east and west of the country recording the highest rate of inflation at 5.0%. Prices in zone 2 (Windhoek and surrounds) increased by 4.1% y/y.

Low food price inflation and subdued housing and related inflation rates have contributed greatly to the low overall inflation figure in May. The moderate food price inflation comes as some relief to struggling households in the current economic climate. Aggregate demand in the Namibian economy remains depressed despite accommodative interest rates. Low aggregate demand is indeed responsible for much of the low price inflation experienced at present. Generally, depressed aggregate demand this is countered with monetary policy through interest rate cuts. This is however not an option for the Bank of Namibia (BoN) at present as decreasing rates to below those in neighbouring South Africa may put pressure on the reserve position and by extension the currency peg. As such monetary policy is currently restricted to what the South African Reserve Bank (SARB) implements across the border.

The SARB, expected to keep rates on hold for 2019 at the beginning of the year, is taking an ever more dovish tone as the year progresses. The last SARB monetary policy committee (MPC) decision was split 3:2 between members wanting to keep rates on hold and those calling for a cut, respectively. The market now expects two rate cuts of 25 basis points in South Africa in 2019. Should the SARB cut rates we believe that BoN will follow, bringing some relief to Namibian borrowers.

We do however not believe that a 50 basis point decrease in interest rates in Namibia will be enough to drive meaningful economic growth in the current policy environment. The policy uncertainty created over the last three years, combined with impending tax amendments, make the business climate in Namibia less conducive to growth and employment creation. In this environment monetary policy is likely to be less effective than during a growth slowdown free of these impediments to growth. Policy clarity thus remains the strongest tool available to government to turn around the Namibian economy.