Category Archives: Inflation

Namibia’s annual inflation rate soared to 7.2% y/y in February following a 7.0% y/y increase in prices recorded in January. Prices in the overall NCPI basket rose by 0.4% m/m, compared to a 1.1% m/m increase in January. On a year-on-year basis, overall prices in eight of the twelve basket categories rose at a quicker rate in February than in January, three categories recorded slower rates of inflation with education the lone category posting inflation in-line with January. Prices for goods increased by 10.1% y/y while prices for services rose by 3.1% y/y. This represents the greatest annual inflation margin recorded between goods and services inflation since December 2008.

Inflation Attribution

The food and non-alcoholic beverages basket category were again the biggest contributor to the annual inflation print after prices in this basket category rose 14.0% y/y in February. The basket category contributed 2.6 percentage points to the annual inflation rate in February. Month-on-month food and non-alcoholic beverage prices rose by 1.0%, slowing from the 2.3% recorded on average over the past 2 months. Fruit price inflation accelerated for a third consecutive month to 26.8% y/y, with citrus prices rising by 27.4% y/y and avocados by 75.7% y/y. The prices of breads and cereals rose by 0.7% m/m and 22.0% y/y with prices of all of the food items in this sub-category rising by double digits percentages year-on-year except for Mahangu meal which rose by a mere 0.3% y/y. Overall, most of the sub-categories in this basket posted higher inflation compared to January while bread, cereals, fish, vegetables and non-alcoholic beverages including coffee, tea and mineral waters showed signs of slowing inflation.

As the graph below depicts, transport was the second largest contributor to February’s annual inflation print, contributing 1.5 percentage points. Prices in this basket category was unchanged from last month but rose 9.9% when compared to the prices a year ago. Operation of personal transport equipment inflation continued to slow with prices in this sub-category rising 14.2% y/y compared to 15.9% y/y a month earlier. The Ministry of Mines and Energy’s decision to increase the price of petrol by 150c per litre from the beginning of March means we may see prolonged periods of elevated inflation for this category. Purchase of vehicles inflation also slowed in February. Prices in this subcategory fell 0.5% m/m while annual inflation decelerated to 5.3% from 6.2% a month earlier. Public transportation services inflation accelerated to 1.1% y/y from 0.9% in January while prices remained stable from last month.

The alcohol and tobacco basket category saw prices increase by 0.4% m/m and 7.1% y/y. The prices of alcoholic beverages climbed by 0.4% m/m and 7.6% y/y. The acceleration from January’s 6.5% y/y rate was largely driven by steep increases in prices of white spirits and brandies which rose 26.0% y/y and 8.1% y/y respectively. We expect more price pressures to come from this sub-category following the steep increase in ‘sin taxes’ on alcoholic beverages with effect from 23 February as was announced by the Minister of Finance during the FY2023/2024 budget speech last month. Tobacco products recorded price increases of 0.2% m/m and 5.1% y/y, with cigarette prices up 5.8% y/y while pipe tobacco prices increased by 2.9% y/y.  Similarly, more price pressures are expected from the increased ‘sin taxes’ on tobacco products.

Outlook

The acceleration of Namibia’s annual inflation rate to 7.2% in February marks the second consecutive month of higher annual inflation and comes as prices of items in most of the basket categories continue to soar. This shows that we have yet to enter a disinflationary cycle and that a prolonged restrictive monetary policy stance may be required to bring inflation down to desired levels.

Namibia is not alone in this predicament. We continue to see relatively high and ‘sticky’ inflation prints from numerous countries. Most notable are the US and the Eurozone, where their central banks are considering further interest rate hikes to push inflation down to target levels faster which in turn heightens fears of a possible recession in those economies.

Whether Namibia will be spared from further rate hikes will be largely dependent on the SARB’s assessment of the necessity to hike rates even further to bring South Africa’s inflation back within the target range of between 3-6%. South Africa’s annual inflation print stood at 6.9% in January. February’s inflation print is expected to be announced this week and will be followed by the SARB’s MPC announcement scheduled for 30 March. Both announcements should provide insight into the scope and duration of further interest rate hikes needed to curb inflation not only for South Africa but for our economy given the close economic ties with our southern neighbour.

Despite seeing inflation accelerating during the first two months of the year, IJG’s inflation model predicts a gradual slowdown in Namibia’s annual inflation rate over the remainder of year, before ending the year at around 4.5%.

The Namibian annual inflation rate rose to 7.0% y/y in January on the back of the 6.9% y/y increase in prices recorded in December. On a monthly basis, prices in the overall NCPI basket rose by 1.1%, compared to a 0.3% m/m increase in December. On a year-on-year basis, overall prices in eight of the twelve basket categories rose at a quicker rate in January than in December, while the other four recorded slower rates of inflation. Prices for goods increased by 9.8% y/y while prices for services rose by 3.1% y/y.

Inflation Attribution

Food and non-alcoholic beverages prices rose 14.0% in January from a year earlier. The basket category, accounting for 16.4% of the NCPI basket , contributed 2.6 percentage points to the annual inflation rate in January. This marks the first month since August 2021 that the transport category was not the top contributor to the annual inflation rate. Month-on-month food and non-alcoholic prices rose by 2.4%, the highest since March 2016. Fruit price inflation ticked up for a second consecutive month to 22.3% y/y, with citrus prices rising by 23.8% y/y, grapes by 6.7% y/y and avocados logging 64.2% y/y. The prices of breads and cereals rose by 3.0% m/m and 22.3% y/y, emanating from maize prices that are 37.2% higher than a year ago, and bread- and cake flour being 27.1% more expensive. The only sub-category to record slower inflation on an annual basis than last month was ‘oils and fats’ which posted inflation of 16.8% y/y, the lowest since March 2022. 

Transport was the second largest contributor to January’s annual inflation print, contributing 1.64 percentage points. Prices in this category rose by 11.1% y/y, the lowest since October 2021. On a month-on-month basis, transport prices fell by 3.2%, following the Ministry of Mines and Energy’s decision to lower the prices of both petrol and diesel in the beginning of January. This resulted in the operation of personal transport equipment inflation slowing to 15.9% y/y from the 22.6% recorded in December. The Ministry’s decision in the beginning of February to leave fuel prices unchanged should aid to further ease price pressure in this category. Prices of the purchase of vehicles sub-category ticked up for a fourth consecutive month to 1.3% m/m and 6.2% y/y. Public transportation services inflation remained relatively steady month-on-month and eased to 0.9% y/y from 1.4% in December. 

The alcohol and tobacco category posted inflation of 2.5% m/m and 5.8% y/y. The prices of alcoholic beverages climbed by 3.0% m/m and 6.5% y/y. The acceleration from December’s 4.5% y/y rate was mainly driven by the prices of white spirits that are 24.7% higher than a year ago. Tobacco products recorded price increases of 0.2% m/m and 2.7% y/y, with cigarette prices up 5.3% y/y while pipe tobacco prices are down 4.2% y/y.

Outlook

Namibia’s annual inflation rate of 7.0% in January came in moderately higher than South Africa’s rate of 6.9%, for the first time since April 2019. Lower fuel prices helped to tame inflationary pressure, but stubbornly high food inflation (the highest since March 2009 on an annual basis) continued to put upward pressure on the overall inflation print. 

While the housing, water & electricity category’s contribution to the annual rate, at 0.7 percentage points, was relatively low, it is worth noting that the prices for the rental payments for dwellings subcategory rose by 2.1% y/y from 1.4% y/y previously. As rental payments make up a large portion (23.3%) of the CPI basket, the low inflationary adjustment means that Namibia’s annual inflation is likely to moderate throughout the year, provided that transport inflation continues to slow. IJG’s inflation model currently forecasts Namibia’s annual inflation rate to steadily slow during the course of 2023, before reaching around 4.3% at the end of the year.

The Bank of Namibia (BoN) in its monetary policy committee today (15 February 2023) raised the repo rate by a further 25bps to 7.00%, in line with the SARB’s hike in January. Forward-rate agreements, which are used to speculate on future borrowing costs, show traders are pricing in one more 25 basis-point increase by the SARB in the current rate-hiking cycle. Should the BoN follow suit, it will take the Namibian repo rate to 7.25%, the highest since May 2009. 

Namibia’s annual inflation rate softened to 6.9% y/y in December. Prices in the overall NCPI basket rose by 0.3% m/m, marginally slower than last month. Year-on-year, overall prices in six of the twelve categories rose at a quicker rate in December than in November, four categories experienced slower rates of inflation and two categories posted inflation rates consistent with those in November. Prices of goods increased by 9.6% y/y, steady from last month. Services inflation continues to trend well below goods inflation and slowed to 3.1% y/y in December.

Inflation Attribution

Transport inflation remained the largest contributor to Namibia’s annual inflation rate, contributing 2.21 percentage points to the annual inflation rate in December. Prices in this basket item rose by 14.3% y/y but contracted by 1.0% m/m, mainly due to the 125c per litre drop in the price of diesel that came into effect in early December. All the sub-categories in the transport basket item bar the purchase of vehicles recorded slower inflation on an annual basis in December. The purchase of vehicles sub-category recorded price increases of 0.2% m/m and 4.5% y/y. Prices in the operation of personal transport equipment sub-category fell by 1.6% m/m while inflation slowed to 22.6% y/y, the slowest over the past 8 months and a sign that the relatively lower oil prices started to filter into the operating costs. Notable price relief in this sub-category is almost certain to show again in next month’s inflation print after the Ministry of Mines and Energy lowered diesel prices by a further 220 cents per litre and petrol by 180 cents per litre at the beginning of January. Prices in the public transportation services sub-category climbed by 0.1% m/m and 1.4% y/y, the slowest annual rise in prices since July 2022.

The food & non-alcoholic beverages item was the second largest contributor to the annual inflation print, marginally behind the transport basket item after it contributed 2.19 percentage points in December. Prices in this basket item rose by a sizeable 2.2% m/m and 11.8% y/y, the steepest annual inflation print since January 2017. While inflation in four of the thirteen sub-categories slowed with 1 remaining steady, the bulk of the sub-categories in this basket item recorded price increases on an annual basis in December, strikingly for the 12^th consecutive month. Oils and fats saw the largest prices increase on an annual basis, rising by 20.8% y/y, followed by fruits which saw prices rise by 20.5% y/y. Bread and cereals prices also saw a sharp increase in December, rising by 6.7% m/m and 18.2% y/y, the steepest annual price increase recorded in this sub-category over the past decade.

The alcohol & tobacco category was the third largest contributor to the inflation rate, marginally higher than Housing, Water and Electricity- and Furniture basket items. Inflation of alcohol and tobacco products slowed to 4.2% y/y in December, but continues to trend above the 3.8% inflation rate reported for this basket item a year ago. Housing, water and electricity inflation softened to 2.1% y/y, yet remained above the 1.2% y/y inflation reported in December last year. The prices of furniture increased by 10.6% y/y in December compared to 1.3% y/y a year ago.

Outlook

December saw Namibia’s annual inflation rate continuing to trend lower with the print falling below 7.0% for the first time since July 2022 and steadily moving back towards the upper end of the SARB’s target range.

While we expect inflation to continue to slow into 2023, a close eye will be kept on January’s print as the month usually marks the revision of rental prices in the NCPI basket, which anchors about a quarter of the inflation basket for the rest of the year. The current economic climate and property market dynamics have us believe that we could see another year of relatively low inflation in this line item for 2023, but somewhat higher than last year.

The SARB’s first MPC meeting for 2023 is scheduled to take place on 26 January. Recent below-expectation inflation numbers coupled with lower fuel prices and moderating food prices should all provide the SARB (and by extension the BoN) leeway to slow the pace of rate hikes.

IJG’s inflation model currently forecasts Namibia’s annual inflation rate to continue to steadily slow during the course of 2023, before reaching around 4.1% at the end of the year.