Category Archives: Inflation

Annual inflation declined to 6.7% in April, 0.3% lower than March. Prices increased by 0.3% m/m. The lower annual figure was due to moderation of food price inflation with is currently at 5.8% y/y, down from its 2016 average of 10.4%. Of the twelve basket items, only two saw a higher annual inflation rate, four remained unchanged, while seven categories saw lower rates of price increases. Prices for goods increased 5.6% y/y while prices for services grew 8.2% y/y, with slower growth in goods prices supported by a stronger Namibian dollar.

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. Annual inflation in this basket category declined to 9.6% in March as the rental payments subcategory was adjusted downward by 0.1% on a m/m basis and have remained at that level in April. Furthermore an 8% tariff increase has been approved by the Electricity Control Board effective 1 July, which should put upwards pressure on this basket item 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, was the second largest contributor to annual inflation, accounting for 1.0% of the total 6.7% inflation. Food and non-alcoholic beverage prices increased by 5.8% y/y, a further slowdown compared to the 7.3% increase in March, and was below the peak of 13.2% witnessed in January.  The slowdown in annual food and non-alcoholic beverage inflation was partly due to base effects as well as lower inflation on agricultural produce resulting from good rainy seasons in parts of South Africa. Bread and cereal prices have moderated to 0.9% y/y, the price of vegetables have decreased by 1.3% y/y and fruits are 0.8% more expensive on an annual basis. While annual growth in coffee, tea, and cocoa prices has slowed slightly, this subcategory has still seen prices increase by 22.4% on a y/y basis, the quickest in the food basket. Fish prices are also still significantly up over last year at 15.8%.

Transport is one of the two basket categories which saw an annual increase in April. This was driven largely by the 8.2% y/y increase in the price of vehicles, but also by the 8.1% y/y increase in the operational cost largely due to higher fuel prices than last year.

The Alcohol and tobacco category displayed increases of 3.9% y/y and 0.4% m/m in April versus 4.4% y/y and 0.4% m/m in March. The main driver in this basket category remains alcohol prices which increased by 4.2%y/y while tobacco was up 2.5% y/y. Normally the effect of sin taxes result in average increases of 4.1% over the months of March and April, thus the increase of only 0.8% over those two months this year is unusually low, especially considering that sin tax increases have been larger than previous years.

Namibian inflation is decreasing at a faster pace than we anticipated at the start of the year. A strengthening rand on a y/y basis has driven a decrease in goods inflation specifically. Oil prices remain relatively stable at around US$50 to US$55/barrel, and the end of the regional drought has brought some relief to consumers with some food prices declining. The recent downgrade of South Africa’s credit rating however, has seen the rand depreciate somewhat, and more weakness could follow if local currency ratings are downgraded. This will flow through to inflation and could cause South African inflation to remain above the 3% to 6% target range for longer than expected. We also expect Namibian inflation to remain elevated in the short term, averaging around 7.4% for the year.

Annual inflation declined to 7.0% in March, 0.8% lower than in February, while prices increased by 0.1% on a m/m basis. The decrease in annual inflation was largely as a result of a drop in food prices and a slight decrease in rental payments for dwellings. Neutralising some of the impact of falling food prices was an increase in the price of vehicles and the cost of operating transport equipment due to an increase in fuel prices. Overall, prices in three of the twelve basket categories increased at a faster annual rate than during the preceding month, eight at a slower rate and one grew at a steady pace. Prices for goods increased 6.3% y/y while prices for services grew 8.1% y/y, with slower growth in goods prices supported by a stronger Namibian dollar.

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.  Annual inflation in this basket category declined to 9.6% in March as the rental payments subcategory was adjusted downward by 0.1% on a m/m basis. We continue to expect the housing and utilities basket category to underpin overall inflation.

Food and non-alcoholic beverages, the second largest basket item, was the second largest contributor to annual inflation despite a 0.6% decrease in prices on a monthly basis. Food and non-alcoholic beverage prices increased by 7.4% y/y, a significant slowdown compared to the 11.3% increase in February. The slowdown in annual food and non-alcoholic beverage inflation was partly due to base effects of a large monthly increase in March 2016 as well as the decrease in prices on a monthly basis in March 2017. The price cuts in maize and flower seen earlier this year mean that bread and cereal prices are now only 1.5% up from March 2016. While annual growth in coffee, tea, and cocoa prices has slowed slightly, this subcategory has still seen prices increase by 22.7% on a y/y basis, the quickest in the food basket. Fish prices are also still significantly up over last year at 16.7%.

Transport costs were one of the few basket categories to see an increase in annual inflation rate in March. As suggested earlier, this is largely due to an increase in fuel prices during the month and supported by increases in vehicle prices. Growth in the annual increase in vehicle prices has continued to slow at 6.9% in March versus 9.4% in February, while growth in the cost of operating personal transport equipment increased to 8.5% y/y versus 4.5% in February.

The Alcohol and tobacco category displayed increases of 4.4% y/y and 0.4% m/m in March versus 5.4% y/y and 0.3% m/m in February. The main driver in this basket category remains alcohol prices with tobacco prices relatively flat y/y.  The increases in sin taxes should put upwards pressure on alcohol and tobacco prices in April as the increased tariff is passed on to the consumer.

Namibian inflation is decreasing at a faster pace than we anticipated at the start of the year. A strengthening rand on a y/y basis has driven a decrease in goods inflation specifically. Oil process remain relatively stable at around US$55/barrel, and the end of the regional drought has brought some relief to consumers with some food prices actually declining. The recent downgrade of South Africa’s credit rating however, has seen the rand depreciate from R12.3/US$ to R13.50/US$ with further weakness a likelihood. This will flow through to inflation and could cause South African inflation to remain above the 3% to 6% target range for longer than expected. Due to currency effects we expect annual inflation to remain elevated over the short term although possibly dipping below 7% in April.

The Namibian annual inflation rate declined slightly to 7.8% in February, 0.4% lower than the 8.2% y/y figure seen in January. Prices increased by 0.2% m/m. Annual inflation was mainly driven by housing, water, electricity and other fuel category which increased at a rate of 9.6% y/y and the food and non-alcoholic beverages category which decelerated to 11.3%, but still remains uncomfortably high. Overall, prices in two of the twelve basket categories increased at a faster rate than during the preceding month, nine at a slower rate and one grew at a steady rate. Prices for goods increased 7.5% y/y while services were 8.1% more expensive on a y/y basis.

Housing and utilities was 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. Overall the housing category increased 0.3% m/m and 9.6% y/y. This resulted in a contribution of 2.7% to the annual inflation figure. The monthly increases were driven by higher maintenance costs, which increased by 1.3% m/m and higher electricity and fuels costs which increased by 1.4% m/m. The other subcategories remained unchanged m/m, but water supply, sewerage service and refuse collection is still increasing by 11.5% y/y and electricity is now 8.3% more expensive than last February.

Food and non-alcoholic beverages, the second largest basket item, was the second largest contributor to annual inflation. Food inflation is currently running at 11.3% y/y, down from the 13.2% y/y figure seen in January. Despite the price cuts between 6% and 12% for flour and maize products announced by Namib Mills, food inflation moderated only slightly. Namib mills claimed the reduction in their prices were driven by improved rainfall over the maize production areas of southern Africa, as well as the strengthening of the Namibia dollar against the US dollar. Many of the sub-categories of food showed monthly decreases, bread and cereals prices were down 1.5% m/m, while fruits and vegetables decreased by 1.1% and 0.6% respectively. However, on an annual basis, bread and cereals prices have still increased by 10.3% y/y while fruits and vegetables are 13.0% and 4.3% more expensive. The downwards pressure on food prices should continue as the effects of a good rainy season filters through to prices.

The Alcohol and tobacco category displayed increases of 5.4% y/y and 0.3% m/m. Tobacco prices increased by 2.0% y/y, while alcohol increased at a much quicker pace at 6.3% y/y. The increases in sin taxes should put upwards pressure on alcohol and tobacco prices as the increased tariff is passed on to the consumer. Transport prices increased by 0.3% m/m and 4.7% y/y in February. Given that fuel levies are set to increase, as set out in the most recent budget, we should see further increases in fuel prices and further rises in transport inflation.

Namibian inflation is now much higher than that of South Africa, and expectations are for high inflation rates to continue in both countries. South African inflation is expected to average 6.2% in 2017, according to the SARB’s January MPC forecast. These expectations are largely driven by a weaker real effective exchange rate and the pass though effect of higher Import prices. The effect of higher food inflation due to the drought, and the pass-through effect of South African food prices on Namibia will likely cause the double digit increases in food prices to continue in the short term, although we are starting to see some of this pressure ease.

Due to expectations of high SA inflation, which remain outside of the target band for most of 2017, we will monitor the March MPC statement closely for a more hawkish SARB. However, given the low level of growth, which has been revised downwards to 1.1% in January, we do not anticipate repo rate increases in response to inflationary pressures in South Africa.

Annual inflation in Namibia averaged 6.7% in 2016, however given the surprisingly high monthly increases witnessed in January, inflation can be expected to remain quite high in 2017. The large monthly increase was driven mainly by rental increases of 9.7% m/m, the largest increase in the last 14 years. Thus, our expectation is for 2017 inflation to average 7.9%.