Category Archives: Inflation

The Namibian annual inflation rate increased to 7.3% in October, up from the 6.9% recorded in September. Prices increased by 0.5% month on month. The yearly increases were largely driven by the housing, water, electricity and other fuel category which increased at a rate of 7.8% y/y, the food and non-alcoholic beverages category which increased by 11.7% y/y and the alcohol and tobacco category which was up 6.0% y/y. Overall five of the 12 basket categories increased at a faster rate than the preceding month, while two remained unchanged.

Housing and utilities, the largest basket item was also the largest contributor to inflation, making up 2.1% of the total annual figure. This category increased at a rate of 0.3% m/m and 7.8% y/y. Water supply, sewage services and refuse collection increased by 0.8% m/m and 13.1% y/y. The high year on year figure is a largely a result of the City of Windhoek increasing water tariffs in July, but the month on month increases continue unabated.  Rental payments and maintenance continue to grow at 7.0% and 6.1% respectively, in line with the general rate of inflation.

Food and non-alcoholic beverages, the second largest basket item, and the second largest contributor to annual inflation, increased by 11.7% year on year, down slightly from the 12% y/y figure seen in September. The month on month figure amounted to a 0.6% increase. The sub-categories of food generally showed moderate increases of between 0.3% and 0.5%, except for a 1.4% m/m increase in fruit, a 3.5% m/m increase in the price of fish and a 4.3% increase in the price of coffee and tea. Strangely, the price of dairy and oils & fats decreased by 1.4% m/m and 1.2% m/m respectively. The upwards pressure on food prices are mainly a result of the drought in Southern Africa which will hopefully ease as the rain season for 2016/17 begins.

Alcohol and tobacco displayed increases of 6.0% y/y and 0.6% m/m. Interestingly, tobacco prices decreased by 0.1% y/y, while alcohol increased in line with general prices at 7.5%.

Transport prices increased by 0.1% m/m after decreasing by 1.1% m/m in September. Purchase of vehicles decrease by 0.3% m/m and public transport is also 0.1% cheaper m/m. Over a one year period, vehicle prices are still up by 10.6%. Furniture prices increased by 0.7% m/m and 7.9% y/y, driven by increases in carpets and appliances, which increased by 3.5%m/m and 3.9% m/m, respectively. Other noteworthy items include telecommunications which increased by 4.0% on a month on month basis, and 6.0% on an annual basis, and clothing materials which increased by 2.5% m/m and 18.4% y/y.

It seems Namibian inflation is continuing to outstrip SACPI. However, inflation expectations remain high in both countries. South African inflation is expected to average 6.4% in 2016 and 5.8% in 2017, as per figures from the South African Reserve Bank. These expectations are largely driven by currency weakness and the pass though effect of higher Import prices. The effect of higher food inflation due to the drought also has a negative effect. Earlier this year the Bank of Namibia released a study by Dr. Postrick Mushendami which demonstrated that South African food inflation tends to have significant effects on the inflation in Namibia. Due to inflation expectations, which return to the target band and low level of growth we do not anticipate repo rate increases in response to inflation from the MPC.

Our expectations of Namibian inflation for 2016 is for an average of 6.6% and for 6.4% in 2017. The main reason for relatively high level being the continual increases seen in administered prices, sustained increases in rentals and housing, and the continuing pass-through effect of high food import prices.

The Namibian annual inflation rate increased to 6.9% in September, up from the 6.8% recorded in August. Prices increased by 0.2% month on month. Half of the basket categories showed higher inflation than the previous month, the most notable being Food inflation which has accelerated to 12% y/y.

Housing, water, electricity, gas and other fuels, which increased by 8% y/y was the largest contributor to the overall annual inflation figure due to it being the largest component of the basket. This was driven largely by the 12% increases seen in water supply, sewerage service and refuse collection and electricity gas and other fuels sub groups. Rapid price increases have been seen in this basket category mainly as a result of increases in inflation for water supply, sewage services and refuse collection after the City of Windhoek increased water tariffs in July.

Food prices increased by 0.9% month on month led by the large increases in the prices of fish (up 4.4% from August) and fruit (up 3.3% m/m). Food price inflation remains worrying with most of the sub groups showing yearly increases in the high teens. Coffee, tea and cocoa increased by 19.5% y/y, sugar jam and honey was up 18.7% y/y and fruit showed an increase of 17.8% y/y. The upwards pressure on food prices are mainly a result of the continuing drought in Southern Africa.

Inflation expectations remain high. South African inflation is expected to average 6.4% in 2016 and 5.8% in 2017, according to the South African Reserve Bank. These expectations are largely driven by currency weakness and the pass though effect of higher Import prices. The effect of higher food inflation due to the continuing drought also has a negative effect. Due to inflation expectations which return to the target band and low level of growth we do not anticipate rate increases from the South African MPC anytime soon.

Our expectations of Namibian inflation for 2016 is for an average of 6.5% The main reason for relatively high level being the increases seen in administered prices, but also the large step-up in rental inflation seen since January 2016. Our expectations for 2017 are also above the South African target band at of 3-6%, at 6.4%.

The Namibian annual inflation rate slowed down to 6.8% in August, down from 7.0% in July. On a month on month basis, prices continued to rise, up 0.2% after the 0.6% uptick seen last month. On a year on year basis, five of the basket categories increased at a faster pace in this month than in July, which were offset by a slowdown in prices of the remaining categories. The biggest contributor to inflation on an annual basis was housing, water, electricity, gas and other fuels, while food and non-alcoholic beverages was the biggest contributor on a monthly basis.

Prices in the food and non-alcoholic beverages basket category decreased 0.2% in August, after an increase of 1.0% was recorded over the preceding month. On a year-on-year basis, inflation in this category also slowed to 11.5%, down from 12.2% when compared to July. The slowdown of food and non-alcoholic beverages inflation was driven by easing of price increases across the majority of the sub-components, with only sugar, jam & honey and coffee, tea & cocoa rising relatively more quickly. Despite the slowdown in price increases, prices of almost all the sub-components are increasing at double digits, which can largely be ascribed to the drought currently experienced in Namibia and South Africa as is reflected by price increases of fruit, vegetables and grain products such as bread & cereals.

Transport, as the third largest basket category by weight, made the second largest contribution to monthly inflation. On a monthly basis transport saw an increase in prices of 0.5% compared to a 1.6% increase in July.  On annual basis price inflation of the transport category increased to 3.4%, up from 3.3% in July, significant above last year’s average of -2.1%.

The annual inflation rate for the category housing, water, electricity, gas and other fuels eased to 8.0% in August, down from 8.2% in July, however, up from 2.3% recorded in August last year. On a monthly basis this category has seen an increase of 0.2% in August when compared to 0.9% in July. Rapid price increases have been seen in this basket category mainly as a result of increases in inflation for water supply, sewage services and refuse collection after the City of Windhoek increased water tariffs in July. Price increases for rentals and other dwellings have been extremely low for a number of years, as reported by the National Statistics Agency (NSA), and the sudden spike at the beginning of the year has largely resulted in the elevated level of annual inflation we are currently seeing.

Alcoholic beverages and tobacco as the fourth largest category recorded a slowdown in annual inflation of 1.0% from July to 5.6% in August 2016. On a month on month basis, prices in this category decreased slightly, down 0.1%. Alcoholic beverages and tobacco inflation has been consistently above the average inflation figure for most of the last five years when looked at on an annual basis, more consistently so than almost any other basket category.

Inflation expectations for the upcoming fiscal year are notably higher than was the case in 2015. There are a number of reasons for this. Firstly, major rand weakens through 2015 has driven up the cost of imports into the Common Monetary Area in rand terms; secondly, oil prices, which fell dramatically through 2014 and 2015 now appear to be stabilising, and the pass-through of base effects is likely to see an upward rebasing in inflation; third, rand weakness and other factors have driven up costs for many services in the country, including many critical utilities such as electricity and water; fourth, drought and poor harvests in the region mean that food prices are likely to increase, particularly if basic grain imports are required; and fifth, increasing interest rates are likely to see some pass-through of increased borrowing costs to consumers, and reduce consumer disposable income.

The first half of 2016 saw notably higher inflation than was the case through 2015, primarily for the aforementioned reasons, as well as a notable increase in rental inflation rates. The same inflation pickup was seen in both Namibia and South Africa, with South Africa’s inflation moving out of the target 3-6% band for the first time in over 18 months, prompting interest rate tightening from the South African Reserve Bank.

Contrary to popular belief, we are of the view that inflation will remain relatively high for the rest of the year, and into 2017. This view is primarily driven by the enormous administered price increases we have seen for services over recent months. Municipal services, water and electricity have all seen at least high-teen percentage increases in prices over the past few months. These increases will remain for the next 12 months, until the base is reset with their inclusion. These increases are likely to more than offset the improvement in transport inflation due to a stronger rand, and the expected slowing of increases in food prices due to more favourable grain prices.

Due to the aforementioned factors, we have revised our inflation expectations for 2016 up to 6.5% (6.3% in the first half of the year) from our previous expectation of 5.8%. The main reason for the major increase comes from the increase seen in administered prices, but also the large step-up in rental inflation seen since January 2016. As this is recorded once a year, the current high inflation for rental payments, at 7%, up from 1.5% in 2015, will provide buoyancy to the overall inflation number for the rest of the year.