Category Archives: Inflation

Annual inflation continues to descend further since the start of the year, falling to 5.4 % y/y in July, 0.7% lower than in June. On a month-on-month basis prices remained flat. The slowdown in annual inflation was largely due to a decline in transport prices. Overall, prices in two basket categories rose at a faster annual rate than during the preceding month, eight at a slower rate and two grew at a steady pace. Prices for goods rose by 3.5% y/y while prices for services rose by 8.1% y/y.

The largest contributor to annual inflation remains Housing and utilities due to its large weighting in the basket. This category rose by 0.3% m/m and 9.1% y/y. January 2017 saw an irregular high rental increase of 9.7%. Annual inflation for rental payments for dwellings remained unchanged at 9.6% in July and will likely remain this high for the rest of the year. The effect of the tariff increases passed on by the City of Windhoek have seen prices of water supply rise by 6.6%. Furthermore, the City of Windhoek has requested for a 10% electricity tariff increase submitted to the Electricity Control Board (ECB) pending approval. Should approval be granted, this should see price levels ticking up. We continue to expect the housing and utilities basket category to underpin overall inflation.

Food and non-alcoholic beverages was the second largest contributor to annual inflation and serves as the second largest basket item in weighting, accounting for 0.8% of the total inflation figure. Prices in this category rose by 4.3% y/y while three subcategories became cheaper, such as bread and cereal prices which declined by 0.6% y/y.

Alcoholic beverages and tobacco prices rose by 3.6% y/y and 0.3% m/m in July compared to 3.0% y/y in June. Alcohol prices have been the predominant driver within this category. However, that role reversed in July with tobacco prices rising by 6.2% y/y while alcohol prices rose 3.0% y/y. Transport, miscellaneous and education individually accounted for 0.3% of the total 5.4% inflation recorded in July. Transport prices increased by 2.4% y/y and fell 1.0% m/m as the cost of vehicles subcategory rose by 0.5% m/m but the cost of operating personal transportation equipment decreased by 1.8% during the month, muting overall inflation for the transport basket category.

Slower increases in food prices since the start of the year have been a large contributor towards the slowdown in annual inflation. Transport prices being the third largest basket category had a significant impact on the downtrend in annual inflation. The Rand took a knock following the failed motion of no confidence against president Jacob Zuma, but fears of further immediate downgrades were squashed when S&P stated that the failed motion did not have ruling on any downgrade scenario. With the SARB having cut monetary policy rates in a bid to support growth and SA inflation returning to within the target band, inflation seems set to remain within these levels. However, it remains to be seen whether the currency will deteriorate further.

Annual inflation declined to 6.1% y/y in June, 0.2% y/y lower than in May, while prices increased by 0.1% m/m, similar to the price level increase witnessed in May. The slowdown in annual inflation was caused mainly by moderation in the price inflation levels of transport and alcoholic beverages and tobacco. Of the twelve basket items, four saw a higher annual inflation rate than the previous month, three remained relatively unchanged, while five categories saw lower rates of price increases. Prices for goods increased by 4.5% y/y while prices for services grew by 8.2% y/y.

Housing and utilities remains the largest contributor to annual inflation due to its large weighting in the basket and the effect of irregularly high rental increases of 9.7% in January. This category increased by 9.8% y/y but remained approximately unchanged month on month. Annual inflation for rental payments for dwelling remained at 9.6% in June and will likely remain this high for the rest of the year. Furthermore, the City of Windhoek has put into effect a 13% tariff increase on water consumption, effective the 1st of June, with a request for a 10% electricity tariff increase submitted to the Electricity Control Board (ECB) pending approval. With the increases in utilities now passed on to the consumer, we believe that this will most likely put upward pressure on this basket category going forward. We continue to expect the housing and utilities basket category to underpin overall inflation.

Food and non-alcoholic beverages, the second largest basket item in weighting, was the second largest contributor to annual inflation, accounting for 0.8% of the total inflation figure. Food and non-alcoholic beverage prices increased by 4.6% y/y, ticking up from the 3.6% recorded in May, still considerably below the peak of 13.2% witnessed in January. Bread and cereal prices have decreased by 2.8% y/y, while the price of vegetables decreased by 2.1% y/y and fruits now 6.3% more expensive on an annual basis.

Transport was the third largest contributor to annual inflation, accounting for 0.7% of the total 6.1% inflation figure. Transport prices increased by 5.0% y/y but remained flat month on month, with the yearly increase driven largely by the 5.8% y/y increase in the cost of operating personal transport equipment.

The alcohol and tobacco category displayed increases of 3.0% y/y with a decrease of 0.3% m/m in June versus 3.3% y/y and 0.1% m/m in May. The main driver in this basket category remains alcohol prices which increased by 3.2% y/y while tobacco was up 2.3% y/y. Inflation in this category remains very subdued despite the announcement of increased sin taxes in March.

Namibian inflation continues to decrease at a faster pace than was anticipated at the start of the year. A strengthening rand and a strong decline in food prices has seen inflation moderating substantially. Increased utilities consumption tariffs imposed by the City of Windhoek this month should change the dynamic towards a slight uptick in inflation going forward, this happening within the basket that is the largest contributor towards inflation.

Annual inflation declined to 6.3% y/y in May, 0.4% y/y lower than April, while prices increased by 0.1% m/m. The lower annual figure was due to further moderation of food price inflation with is currently at 3.7% y/y, down from the 2016 average of 10.8%. Of the twelve basket items, three saw a higher annual inflation rate than the previous month, two remained unchanged, while seven categories saw lower rates of price increases. Prices for goods increased 4.9% y/y while prices for services grew 8.2% y/y, with slower growth in goods prices supported by a stronger Namibian dollar and lower food prices.

Housing and utilities remains the largest contributor to annual inflation due to its large weighting in the basket and the effect of irregularly high rental increases of 9.7% in January. This category increased by 9.8% y/y and 0.3% m/m. Annual inflation for rental payments for dwelling remained at 9.6% in May and will likely remain this high for the rest of the year. Furthermore, NamWater has been granted an approved 13% increase in water delivery, effective on 1 June while NamPower received an approved 8% from the Electricity Control Board effective 1 July this year. The increases in utilities is likely to be passed on to the consumer and should put upwards pressure on this basket category going forward. We continue to expect the housing and utilities basket category to underpin overall inflation.

Transport was the second largest contributor to annual inflation, accounting for 0.9% of the total 6.3% inflation figure. Transport prices increased 7.1% y/y and 0.6% m/m, driven largely by the 7.6% y/y increase in the price of vehicles, but also by the 9.3% y/y increase in the operational cost due to higher fuel prices.

Food and non-alcoholic beverages, the second largest basket item, was the third largest contributor to annual inflation, accounting for 0.7% of the total inflation figure. Food and non-alcoholic beverage prices increased by 3.7% y/y, a further slowdown compared to the 5.8% increase in April, well below the peak of 13.2% witnessed in January.  The slowdown in annual food inflation is largely due to lower inflation on agricultural produce resulting from good rainy seasons in parts of South Africa. Bread and cereal prices have decreased by 3.7% y/y, the price of vegetables have decreased by 4.0% y/y and fruits are only 1.5% more expensive on an annual basis.

The Alcohol and tobacco category displayed increases of 3.3% y/y and 0.1% m/m in May versus 3.9% y/y and 0.4% m/m in April. The main driver in this basket category remains alcohol prices which increased by 3.5%y/y while tobacco was up 2.6% y/y. Inflation in this category remains relatively muted despite the announcement of increased sin taxes in March.

Namibian inflation is decreasing at a faster pace than we anticipated at the start of the year. A strengthening rand and a strong decline in food prices has seen inflation moderating substantially. Similarly, South Africa has seen their inflation returning to the target band faster than expected. The rand exchange rate benefited from increased global capital inflows to emerging markets which largely offset the impact of the sovereign credit ratings downgrade. However, the possibility of further downgrades in the future remains a risk for currency weakness going forward, which would likely push inflation higher in both Namibia and South Africa.