Category Archives: Inflation

Namibian annual inflation fell to 3.6 percent in February, from 4.5 percent in January. On a monthly basis, weighted prices fell by 0.2 percent. Food and non-alcoholic beverages, alcoholic beverages and tobacco, and miscellaneous goods and services continue to experience elevated levels of annual price increases. The aforementioned basket categories, along with hotels, cafes and restaurants, were the only categories that experienced year on year increases in the rate of inflation during February. The majority of CPI basket categories saw rates of inflation fall on an annual basis. On a monthly basis the clothing and footwear, transport, and communications categories experienced price declines contributing to an overall decline in prices for the month.

Transport prices fell by 2.9% during February after falling 1.5% in January, and was the single biggest contributor to the overall drop in prices experienced during the month. Within the basket category, operation of personal transportation equipment, was the only subcategory to experience a decline. The two remaining categories, purchase of vehicles and public transportation services, experienced relatively steady price growth. The deflation experienced in operation of personal transport equipment is due to the further decrease in fuel prices in February driven by current low oil prices. The subcategory’s large weighting resulted in the transport category as a whole experiencing deflation on a month on month basis.

The Communications basket category experienced price deflation during February although this is due to the uncharacteristically high inflation experienced during January. For 11 months during 2014 this category experienced year on year price deflation, with only December experiencing a very slight rise in year on year prices. February is only the third month in the last 15 demonstrating inflation on a year on year basis. Clothing and footwear, the last of the three basket categories to exhibit deflation on a monthly basis fell 0.4% but rose 1.6% on a year on year basis, well below the overall inflation level. The three deflationary categories make up approximately 21% of the CPI basket which illustrates the low level of inflation experienced by the remaining categories during February.

Food and non-alcoholic beverages experienced above average monthly price increases and the rate of inflation rose on a year on year basis for the first time in 8 months. 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. The alcoholic beverages and tobacco category continues to see prices rise at a more rapid rate than most of the basket categories. Year on year inflation of 7.7%, up from 7.5% in January, is not likely to experience much slowdown going forward due to South Africa raising sin taxes during their last budget announcement.

While we expected inflation to slow further in February, the magnitude of this drop was unexpected. We expect inflation to normalise somewhat in March with prices growing in the latter half of the year. Low fuel prices should see food and non-alcoholic beverage inflation slowing towards June due to the lagged transmission mechanism. This together with the depressed levels of inflation in housing, transport, and various other basket categories should see inflation at or near these low levels for the next few months. However the current drought resulting in large losses in agricultural production in Namibia and South Africa, as well as South Africa raising fuel prices to fund infrastructure developments could see surprises to the up-side. The current weak rand will have an inflationary effect on imported goods which will add to any upside surprises in the coming months.

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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