Category Archives: Inflation

The Namibian annual inflation rate accelerated to 4.8% y/y in September, after moderating to 4.4% y/y in August. Notably, prices in the overall NCPI basket increased by 0.8% m/m in September compared to August where there was no overall change in the price index. On an annual basis prices in five of the twelve basket categories rose at a quicker rate in September than in August. Three categories remained unchanged, while the rate of price increases in four categories slowed for the month of September. Prices for goods increased at a rate of 4.9% y/y in September, quicker than the 4.6% y/y increase in August. Prices for services increased at a rate of 4.7% y/y following a 4.1% y/y increase in August.

Transport was once again the largest contributor to annual inflation in September, accounting for 1.7% of the total 4.8% annual inflation rate. This was largely expected considering the wave of increases in fuel pump prices seen over the last five consecutive months, including September. Transport prices increased at a rate of 3.7% m/m in September, rising much faster than the 0.8% m/m increase recorded in August. On an annual basis, the increase in transport prices has reached double digits for the first time since June 2014. Transport prices increased by 12.9% y/y in September, faster than the 9.7% y/y increase recorded in August. Prices in the three sub-categories all recorded increases on a year-on-year basis. Prices relating to the purchase of vehicles increased at a rate of 8.5% y/y, while prices relating to the operation of personal transport equipment increased by 13.3% y/y. The biggest increase was realised in the public transport services sub-category. The 20% increase in taxi fares that was approved in August came into effect in September and attributed to the 18% y/y increase for this sub-category.

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 0.3% m/m and 3.8% y/y. Prices in the electricity, gas and other fuels subcategory increased at 9% y/y, which was slower than inflation of 13.2% recorded in August. Month-on-month, prices in this subcategory increased marginally at 0.2%. 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 by 0.1% m/m.

Prices for the alcoholic beverages and tobacco category increased at a rate of 5.6% y/y and 0.8% m/m. Prices of alcoholic beverages increased at a rate of 6.3% y/y while tobacco prices increased at a rate of 2.6% y/y.

The Namibian annual inflation rate of 4.8% is closely tracking that of neighbouring South Africa (August: 4.9% y/y). Having endured sharper increases to fuel pump prices than in Namibia, SA’s annual inflation surprisingly moderated from 5.1% y/y in July. The price of Brent crude oil has been hovering above US$80 since mid-September and has come down over 5.6% from a high of US$85/bbl on the 9^th of October. Oil is likely to range above US$80/bbl due to downside risks to global oil supply. The US once again faces another hurricane that will affect US production in the interim. Further exacerbating matters is US sanctions on Iranian supply while OPEC is exercising restrictive measure at the same time. These events could tilt the oil price upward, putting more pressure on fuel pump prices going forward amidst a rand that has depreciated from a September best of R14.04 to the US dollar.

The near-term outlook for the rand hinges on two major events, both scheduled for October. First up is the imminent announcement of Moody’s credit review decision, scheduled for release on the 12^th of October, and thereafter the tabling of the Medium-Term Budget Policy Speech (MTBPS) on the 24^th of October. Moody’s review decision comes in the same week that saw Nhlanhla Nene request that President Ramaphosa relieve him of his duties as finance minister. Former SARB governor Tito Mboweni has since been appointed has finance minister, a move welcomed by the market as shown in the firming of the rand since the change in finance ministers was brought about. Minister Mboweni will table a budget many expect will be positive in terms of expenditure remaining within set bounds, which is crucial as shortfall’s in revenue collection are expected due to the struggling economy. Moody’s had previously warned that diverting from fiscal consolidation will be seen as a credit negative, although Moody’s decision will likely precede the mid-term budget speech. Any adverse outcomes from Moody’s review decision and the MTBPS could lead to more rand weakness and subsequently accelerated inflation. This would force the SARB to hike interest rates in an attempt to contain inflation, with Bank of Namibia likely to follow suit in order to maintain the reserve position. Risks to inflation thus remain to the upside, the consequences of which could be higher interest rates and further pressure on the economy.

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.