Category Archives: Inflation

The Namibian annual inflation rate decreased to 4.4% in August, a slightly slower pace than the 4.5% y/y rate of increase in prices recorded in July. The overall NCPI basket registered no price increases on a month-on-month basis in August, following inflation of 0.5% m/m in July. On an annual basis prices in just two of the twelve basket categories rose at a quicker rate in August than in July. Slower rates of inflation in six categories largely contributed to the overall slower rate of increases recorded in August. The rate of inflation in three of the twelve categories remained unchanged. Prices for goods increased at a rate of 4.6% y/y in August, consistent with the July rate. Prices for services increased at a rate of 4.1% y/y following a 4.3% y/y increase in July.

Just as it was in July, transport was the largest contributor to annual inflation in August, accounting for 1.3% of the total 4.4% annual inflation rate. On a monthly basis, transport prices increased at a rate of 0.8% in August, rising faster than the 0.6% m/m increase recorded in July. On an annual basis, transport prices increased by 9.7%, faster than the 8.9% y/y increase recorded in July. August has also been the third consecutive month in which transport prices have been increasing at a quicker annual pace. Prices in the three subcategories all recorded increases on a year-on-year basis. Prices relating to the purchase of vehicles increased at a rate of 7.9% y/y, while prices relating to the operation of personal transport equipment increased by 12.6% y/y. A 20% increase in taxi fares was approved in August and so will only reflect in the public transportation services subcategory from next month. This was the only subcategory that registered a slower pace of increase in August of 1.7% compared to 1.8% in July.

The transport category has been under pressure following consecutive months of fuel price hikes, with hikes in September being the latest. The price of Brent Crude oil has rallied since the start of August, following a drop in price for much of July. Currency weakness observed in August coupled with the increase in the price of Brent Crude oil drove the increase in fuel prices. As long as these pressures and under-recoveries remain, we expect that the ministry of mines and energy will continue hiking fuel pump prices.

The Housing and utilities category was the second largest contributor to annual inflation, due to its large weighting in the basket. Prices for this category increased by a rate of 0.8% m/m and 4.4% y/y. The electricity, gas and other fuels subcategory recorded the largest increase in prices at 13.2% y/y, faster than inflation of 8.4% y/y recorded in July. Month-on-month, prices in this subcategory increased by 0.5%. The water supply, sewerage service and refuse collection subcategory prices remained unchained on a monthly basis, while the regular maintenance and repair of dwellings subcategory showed prices decreasing at a rate of 0.4% m/m.

Prices for the alcoholic beverages and tobacco category increased at a rate of 5.4% y/y, but declined 0.3% m/m. Prices of alcoholic beverages increased at a rate of 5.8% y/y while tobacco prices increased at a rate of 3.8% y/y.

The Namibian annual inflation rate of 4.4% remains quite low seven months into 2018. It is also trending lower than that of neighbouring South Africa (July: 5.1% y/y). The factors putting upward pressure on inflation at present are currency weakness and the volatility in the price of Brent Crude oil. Tropical storms in the US (Hurricane Florence) is pilling doubt on US production, with expectations for limited supply, which is driving the oil price upward. Fears of Turkish and Argentinian troubles spreading further afield have resulted in prolonged emerging market bond and equity sell-offs. The EM risk-off sentiment has seen the rand weakening by over 17% from the start of August to a peak of R15.60/US$ during the first week in September. Effects of a weaker rand are passed through to Namibia by way of the currency peg. The uncertainty of how long this currency weakness will persist directly feeds into the SARB’s inflation forecast at a time when SA inflation is trending towards the SARB’s 6% upper boundary for annual inflation. If the SARB believes that inflation could break through its 6% target it is likely to hike interest rates in an attempt to rein in escalating inflation. Should the SARB hike rates we believe that the Bank of Namibia is likely to follow suit in order to maintain the reserve position. Higher interest rates will be a further drag on the already struggling Namibian economy.

The Namibian annual inflation rate increased to 4.5% in July, following the 4.0% y/y increase in prices recorded in June. Prices increased by 0.5% m/m, a notable acceleration from the 0.2% increase recorded in June. On an annual basis prices in five of the twelve basket categories rose at a quicker rate in July than in June, somewhat offset by lower rates of inflation in four categories, while the rate of inflation in three categories remain unchanged. Prices for goods increased by 4.6% y/y while prices for services increased by 4.3% y/y. This is the first month since December 2016 in which goods inflation was higher than services inflation.

Transport accounted for 1.2% of the total 4.5% annual inflation figure in July, making it the largest contributor this month. On a monthly basis, transport prices increased by 0.6% in July, which is slower than the 1.6% m/m increase recorded in June. However, on an annual basis, the 8.9% increase in transport prices is faster than the 7.2% y/y growth recorded in June. Prices related to the operation of personal transport equipment increased by a hefty 11.8% y/y, compared to the 8.9% y/y increase recorded in the preceding month. The price of both petrol and diesel increased by 10 cents per litre in July, contributing to the jump in the overall category. Price increases related to the purchases of vehicles and prices for public transportation services were relatively unchanged month-on-month and year-on-year. Both of these sub-categories are under threat of higher inflation in the future due to currency weakness and taxi union demands.

The price of Brent Crude oil has been dropping since the beginning of July due to a waning global economic growth outlook and reports of crude inventories increasing in the US. This should bring some relief as oil price increases have overshot expectations in 2018 thus far. We do, however, expect fuel price increases towards the end of the year as there are currently under-recoveries present at the pumps. The recent currency weakness is also likely to have an impact on the fuel price.

The Housing and utilities category was the second largest contributor to annual inflation, due to its large weighting in the basket. Price inflation for this category came in at 0.8% m/m and 3.7% y/y. The acceleration in inflation for this category is due to a raft of price increases introduced by several of the country’s municipalities in July. The electricity, gas and other fuels subcategory recorded an increase in prices of 8.4% y/y, which is a faster rate of increase than the 4.9% y/y registered the previous month. Month-on-month, prices in this subcategory increased by 3.5%. The water supply, sewerage service and refuse collection subcategory recorded slower price increases at 6.1% y/y in July, while the regular maintenance and repair of dwellings subcategory recorded price increases of 3.6% y/y, up from 2.3% y/y recorded in June.

The alcoholic beverages and tobacco category recorded price increases of 1.9% m/m and 6.8% y/y, an increase over the figures seen in the prior month. Prices of alcoholic beverages rose 7.5% y/y while tobacco prices increased by 3.6% y/y.

Namibian annual inflation of 4.5% in July is the highest level for the year thus far. For the second month in a row, most of the increase in the annual inflation figure was driven by increases in transportation costs. As we expected, the Bank of Namibia’s Monetary Policy Committee (MPC) today announced their decision to leave the Repo rate unchanged at 6.75%. The MPC said the current rate remains appropriate to support domestic growth, while maintaining the currency peg. As at the 31^st of July, the stock of foreign reserves stood at N$32.6 billion, representing a 9.9% m/m increase. This, the bank says, is estimated to be enough to cover 5.3 months of imports of goods and services.

The Namibian annual inflation rate edged up to 4.0% in June, following a rise in prices of 3.8% y/y recorded in May. Prices increased by 0.2% m/m. Of the twelve basket items, three saw a higher annual inflation rate than in the previous month, three remained unchanged, while six categories saw lower rates of price increases. Prices for goods increased by 3.8% y/y while prices for services increased by 4.2% y/y. The increase in prices for services was unchanged from the increase recorded in May, while goods inflation accelerated on an annual basis.

Transport, the third largest basket item, was the largest contributor to annual inflation, accounting for 1.0% of the total 4.0% annual inflation figure. Prices for transport rose 2.7% m/m and 7.2% y/y in June, up from the 0.9% m/m and 5.6% y/y figures seen in May. Prices related to the operation of personal transport equipment increased by 8.9% y/y in June, compared to the 6.2% y/y increase recorded in the preceding month. The price of both petrol and diesel increased by 60 cents per litre in June, contributing to the jump in the overall category. Price increases related to the purchases of vehicles and prices for public transportation services were relatively unchanged month-on-month and year-on-year.

The price of Brent Crude oil dropped by 6.9% on Wednesday to US$73.40 a barrel, the biggest daily decline in two years. The sell-off followed Libya’s announcement that it would boost supply by reopening four export terminals that had been closed since June. Oil prices have been volatile lately after the US has said that it would reinstate sanctions against Iran, a major producer. Wednesday’s decrease brings some relief as oil price increases has largely overshot expectations in 2018. This relief should filter through to Namibian consumers who have experienced a number of fuel price increases during the year. The decision not to increase fuel prices in July by the Ministry of Mines and Energy means that there are under-recoveries at the pumps at present. While fuel price increases towards the end of the year are expected, Wednesday’s decrease in the oil price may result in lower increases than what would otherwise be expected.

The Housing and utilities category was the second largest contributor to annual inflation, due to its large weighting in the basket. Price inflation for this category came in at 3.2% y/y, but remained relatively unchanged month-on-month. The regular maintenance and repair of dwellings subcategory recorded an increase in prices of 2.3% y/y, which is a somewhat slower rate of increase than the 2.6% y/y registered the previous month. Month-on-month, prices in this subcategory increased by 0.7%. The electricity, gas and other fuels subcategory recorded slower price increases for a third consecutive month at 4.9% y/y in June. The rest of the subcategories remained unchanged on both a monthly and annual basis.

Alcoholic beverages and tobacco, the fourth largest category, saw marginally slower price increases of 5.1% y/y and unchanged prices month-on-month. Prices of alcoholic beverages rose 5.3% y/y while tobacco prices increased by 4.1% y/y. Food inflation decelerated to 3.8% y/y in June from 3.9% y/y in May. Low food inflation, along with low rental price increases recorded in January, greatly contributed to maintaining the inflation rate at well below average levels for Namibia.

Namibian annual inflation at 4.0% has slowly been ticking up since April, and our expectations are that this trend will continue going forward. Most of June’s increase in the annual inflation figure was caused by the increase in the fuel price of 60 cents per litre. Second round effects will influence other basket items such as food in the coming months.

South African annual inflation came in at a surprising 4.4% in May, slowing somewhat from April’s reported 4.5%. The cumulative effects of increases in fuel prices and VAT was expected to push up the inflation figure.  As Namibia imports most of its inflation from South Africa, the fact that inflation remains in the lower half of the SARB’s target band is positive news for Namibian consumers given the current domestic economic challenges.