Category Archives: Inflation

Namibian annual inflation fell to 4.5 percent in January, from 4.6 percent the preceding month. On a monthly basis, weighted prices rose by 0.8 percent. The consumption categories experiencing the largest price increases over the past 12 months were alcoholic beverages and tobacco (7.5%), miscellaneous goods and services (6.6%), and food (6.5%). The drop in inflation over the period is attributed to the decline in food inflation and the drop in transport inflation, driven by lower fuel prices.

Food and non-alcoholic beverages have seen a steady decline in year on year inflation over the last seven months (down from 10.1% to 6.5%), which contrasts with alcoholic beverages and tobacco which have experienced increased year on year inflation since June last year (up to 7.5% from 6.1%). Housing, water, electricity, gas and other fuels, the largest weighting in the CPI basket, remained roughly in line with December’s year on year inflation of 3.6 percent.

Transport inflation continued to decline in January, to 1.5 percent, from 2.9 percent in December. The continued fall in this basket category was expected given the oil price decline. Transport inflation reached 10.7% in June last year as the oil price peaked. Since then the price of oil has fallen over 50% driving a decline of 21% in the price of fuel within Namibia thus far. We expect the fuel price to decline further over the coming months as the oil price stays depressed and this should lead to deflation in the Transport category of the NCPI basket within the next couple of months.

The steady fall in food and other beverage inflation is likely to continue for the greater part of the year as lower fuel prices impact production input costs. The lag between the drop in fuel prices and food inflation slowing tends to be between seven and eleven months and as such should start kicking in before the second half of the year. We are unlikely to see deflation in this basket category as fuel is only one of the many inputs into food and beverage production.

Of the four biggest categories of the NCPI basket only food and non-alcoholic beverages and alcoholic beverages and tobacco currently have inflation levels above the basket average. Considering that we expect food and non-alcoholic beverages inflation to slow, due to the lagged transmission mechanism between low fuel prices and food inflation slowing, and the other determining categories to stay depressed, we expect a further decline in inflation going forward for at least the first half of the year. It should be stressed that the decline in inflation is due to supply side factors and therefore should not be seen as a drop in demand from the Namibian consumer. Supply side inflation respite should benefit the consumer and support GDP growth.

Namibian annual inflation fell to 4.6 percent in December, from 5.0 percent the preceding month. On a monthly basis, weighted prices fell by 0.2 percent. The consumption categories experiencing the largest price increases over the past 12 months were education (8.1%), alcoholic beverages and tobacco (7.1%) and food (7.0%).

On a weighted basis, largely due to heavy weightings in the NCPI basket, over 75 percent of total inflation stemmed from food and non-alcoholic beverages, alcoholic beverages and tobacco, housing, water, electricity, gas and other fuels and transport.

Transport inflation continued to decline in December, to 2.9 percent, from 3.9 percent in November. This represents, however, an even more notable decline from the level of 10.7 percent just seven months earlier, recorded in June. Given the magnitude of the fall in oil prices witnessed over recent months, however, it is becoming increasingly likely that deflation will be seen in the transport category of the NCPI basket in the coming months. This is primarily due to the fact that despite the 14% decline in the price of diesel and petrol from their August highs of N$12.42 and N$12.29 per liter, respectively, over the same period, the cost of oil in Rand/NAD, has fallen by over 55%. As such, major over-recoveries are being seen at the pumps in the country, which recoveries will only increase over coming months, and are thus likely to be passed on to the consumer. As such, domestic pump prices are likely to fall by at least N$2 per liter over the next quarter, taking price back to levels last seen in early 2012.

Interesting to note is the lagged effect of falling fuel prices on inflation. While pump price changes are rapidly (same month, or one month thereafter) noticed in inflation figures, the price of oil in Rand is a good three-month leading indicator of transport inflation. This is largely due to the fact that it takes between two and three months for falling oil prices to translate to falling pump prices, which in turn translate into falling transport inflation.

Also interesting to note is that while falling pump and oil prices are fairly rapidly passed along to the transport inflation sub-category of “operation of personal transport inflation”, the category of “public transportation services” sees the benefits of falling fuel prices much more slowly, with a nine-month lag on the transmission of petrol price changes to consumers, and a three month lag in the transmission of the change in diesel prices to consumers. The reason for this is likely to be, primarily, that most public transport prices are administered, and thus set quarterly, or annually. The reason for the slower transmission of petrol prices to consumers is that most petrol-powered public transport is made up of taxi and minibus services, which adjust prices less regularly than do the municipalities for their diesel-powered bus services.

As with transport inflation, food inflation is partially determined by oil/fuel prices. However, the transmission mechanism for changes in prices is significantly more slow than is seen in transport inflation, thus terming these price changes “second round effect”, as opposed to the “first round effects” seen in transport inflation. In Namibia, the second round effects of lower fuel prices take between seven and 11 months to manifest, usually resulting in lower growth in inflation, rather than deflation (as can be witnessed for transport inflation). Food inflation tends to fall as a result of lower fuel prices as both food production and transport rely on fuel as a key input. The former, or course, manifests less quickly than the latter.

While inflation declined dramatically in December, further declines are expected through the first quarter of 2015, due to the falling fuel price, as well as the aforementioned lagged transmission of already low oil prices to the price of consumer goods in the country. On the demand-pull-side, however, inflation remains relatively high, due to the buoyant state of the Namibian economy, and thus the strong demand for local services, particularly.

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Namibian annual inflation remained unchanged at 5.0 percent in November, while on a monthly basis it increased from 0.1 to 0.2 percent. The consumption categories experiencing the largest price increases over the past 12 months were education (8.1%), alcoholic beverages and tobacco (7.8%) and food (7.2%). Only one consumption category saw prices decline, namely communications, which saw prices decline 1.4 percent over the 12 month period.

On a weighted basis, largely due to their heavy weightings in the NCPI basket, over 75 percent of total inflation stemmed from food and non-alcoholic beverages, alcoholic beverages and tobacco, housing, water, electricity, gas and other fuels and transport.

On the back of above-trend growth in Namibia, we continue to see locally administered prices, particularly for services, experiencing above (weighted) average inflation. While annual NCPI (i.e. weighted average inflation) was 5.0 percent in November, a number of services were significantly higher, with some in excess of double this figure. These high inflation levels, being above average inflation, increase the average. Public transport saw the highest annual increase in prices of local administered prices, increasing by 11.0 percent, while electricity gas and other fuels increased by 10.5 percent. Many other services saw high-single-digit inflation, as illustrated in the table below. Strangely, and in contradiction to extensive but anecdotal evidence, rental inflation was well below average inflation over the past 12 months, at just 1.9 percent.

Nevertheless, official measures of service inflation remain below that of goods, at 3.7 and 5.9 percent, respectively.

As oil price declines are transmitted to consumers, we expect to see goods inflation falling, starting with transport prices (current to three months out), followed thereafter by food prices (six to 18 months out). Inflation for the year (2014) is expected to average 5.4 percent, marginally below initial expectations of 5.6 percent.