Category Archives: Inflation

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.

Annual inflation for October slowed by 0.3 percentage points, to 5.0 percent as compared to 5.3 percent recorded a month earlier. On a monthly basis, the inflation rate increased to 0.2 percent. The annual decline in inflation was primarily on account of base effects, with food inflation continuing to slow and transport prices remaining unchanged month-on-month. Housing utilities, the largest weighting in the CPI basket, also saw no growth during October.

Education has surpassed food and non-alcoholic beverages as basket category with the highest inflation, with the cost of tertiary education continuing to grow at a rate of 9.8% per year. The rate of growth of food and non-alcoholic beverage prices has declined for the past 5 months, whereas the cost of alcoholic beverages and tobacco continues to grow at an increasing pace. The Communications category continues to see prices decrease year on year (down 1.1%), and is thus the only category of expenditure seeing actual price declines.

The decline in communications prices is a direct result of the low interconnection rates between operators within the country. The increased use of internet based communication has added further competition within the sector which has contributed to the decrease in prices.

Decreases in the global oil price are expected to filter through to the consumer in two parts over the next 18 months. First round effects should be felt in the next two months as fuel pump prices decline, while second round effects are expected to have a price-reducing effect on food prices 8-18 months out.

On account of falling oil prices, we have revised our forecast average inflation for 2014 to 5.4% in 2014, down from previous forecasts of 5.7%. We maintain our view that demand-factors are starting to lead inflation in Namibia, as strong growth in the economy with rural urban migration contributing to demand driven increases in prices. Administered and services prices are especially prone to increases caused by these effects. Recent unrest about the cost of housing is not likely to have a long term effect on the rate at which these prices grow but may have a short term influence on the rate of price increases.

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