Category Archives: Inflation

Namibia’s annual inflation rate softened to 6.1% y/y in April. On a month-on-month basis, prices in the overall NCPI basket rose by 0.4% m/m, following the 0.6% m/m increase in March. On an annual basis, overall prices in three of the twelve basket categories rose at a quicker rate in April than in March, eight categories recorded slower rates of inflation while inflation in the education category remained steady over the period. Inflation on services ticked up to 3.2% y/y while inflation on goods edged lower to 8.2% y/y.

Inflation Attribution

The Food and Non-Alcoholic beverages basket item was once again the largest contributor to Namibia’s annual inflation rate, contributing 2.5 percentage points in April. Prices of this basket item increased by 0.5% m/m and 13.5% y/y. The year-on-year inflation rates for most of the sub-categories in this basket category slowed from March but remain relatively elevated. Fruits posted the highest year-on-year inflation followed by Breads and Cereals. Fruit prices increased by 1.2% m/m and 28.5% y/y, marginally slower than the 29.1% y/y increase recorded a month earlier. Prices of the Breads and Cereals sub-category fell by 0.1% m/m but remain high considering that prices of this sub-category are 19.8% higher than they were a year ago. Vegetables and Fish were the only sub-categories which recorded quicker inflation compared to March on a year-on-year basis. Prices of the Vegetables sub-category rose by 2.5% m/m and 15.2% y/y, while prices of the Fish sub-category increased by 0.5% m/m and 8.8% y/y.

The Alcohol and Tobacco basket item was the second largest contributor to April’s inflation print, contributing 0.9 percentage points. Prices in this category rose by 0.6% m/m and 6.7% y/y. Inflation on alcohol products came in at 7.6% y/y, a slight uptick from the 7.4% y/y reported in March. Tobacco product inflation came in at 2.6% y/y, down from 4.8% y/y a month ago. Six of the nine sub-categories in this basket item posted either slowing or steady inflation. Pipe Tobacco, Brandies and Beers/Ales/Ciders were the only sub-categories which saw prices grow faster in April than in March.

Housing, Water and Electricity, which has the heaviest weighting in the inflation basket at 28.4%, was the largest contributor to inflation among the remaining categories and replaced Transport as one of the top three contributors to Namibia’s annual inflation print. Inflation in this category came in at 2.6% y/y in April, down from 3.0% y/y in March. All four sub-categories in this basket item recorded slowing inflation compared to March on a year-on-year basis. Prices of Electricity, Gas and Other Fuels fell by 0.4% m/m, while annual inflation in this subcategory slowed to 4.9%. Prices in the Regular Maintenance and Repair of Dwelling sub-category decreased by 0.4% m/m with annual inflation coming in at 4.8%. Rental inflation and prices of Water Supply, Sewerage Service and Refuse remained steady month-on-month with annual inflation at 2.1% and 2.5%, respectively.

Outlook

The steep drop in April’s inflation print to 6.1% is primarily due to base effects in the Transport category with fuel prices now only marginally higher than they were a year ago. Still, the slowdown should be a welcome development for the Bank of Namibia (BoN) and its quest to temper inflationary pressure. The drop in April’s inflation print, coupled with the fact that we see inflation starting to ease in other parts of the world, may signal the start of a much-anticipated disinflationary cycle which in turn could see the end of the BoN’s tightening of the belt. The BoN raised lending rates by a further 25bps last month, again deciding to not hike as aggressively as the South African Reserve Bank (SARB) last time round and now lags the SARB’s lending rate by 50bps.  Elevated food prices and a weak currency do however pose risks to the BoN’s inflation fight.

IJG’s inflation model continue to predict a gradual slowdown in Namibia’s annual inflation rate over the remainder of year, before ending the year at around 4.8%.

Namibia’s annual inflation rate remained unchanged at 7.2% y/y in March. On a month-on-month basis, prices in the overall NCPI basket rose by 0.6%, compared to a 0.4% m/m increase in February. On an annual basis, overall prices in five of the twelve basket categories rose at a quicker rate in March than in February, four categories recorded slower rates of inflation and three recorded inflation rates consistent with those in February. Inflation on goods and services remained steady at 10.1% y/y and 3.1% y/y, respectively.

As the graph above shows, the largest contributor to inflation among the remaining categories was the alcohol and tobacco basket item. Prices in this category rose by 0.2% m/m and 6.9% y/y in March compared to increases of 0.4% m/m and 7.1% y/y in February. Both alcohol and tobacco sub-categories posted slightly slower rates of inflation. Alcoholic beverage inflation slowed to 7.4% y/y from 7.6% y/y in February. White spirits continue to be a notable driver of inflation pressure in this sub-category with annual inflation on white spirits accelerating for the fourth consecutive month to 28.3% from 26.0% a month ago. Tobacco products inflation slowed to 4.8% y/y from 5.1% in February. Inflation on cigarettes remained steady at 5.8% y/y while pipe tobacco inflation slowed to 1.8% y/y from 2.9% y/y. in February. As noted in last months’ NCPI report, we anticipate more price pressures to come from this sub-category following the announcement of a steep rise in “sin taxes” on alcoholic beverages and tobacco products during February’s annual budget speech.

Outlook

March’s sticky inflation print of 7.2% comes as a surprise given that we expected some easing like we have seen from recent CPI prints in other parts of the world. This means that the much-anticipated disinflationary cycle has yet to come into effect, setting the stage for a prolonged restrictive monetary policy stance as was alluded to during last month’s report. 

The SARB raised its lending rate by a further 50bps in March, implying that its monetary policy committee is of the view that more needs to be done in terms of curbing inflation and bringing it within the target range. The Bank of Namibian (BoN) will almost certainly respond in kind when it holds its MPC meeting on 19 April. Namibia’s inflation has been trending slightly higher than South Africa’s in recent months as the graph above shows and this trend will also be on the radar of the BoN’s MPC when it decides on the extent of further tightening required to keep price stability and the currency peg in check.

IJG’s inflation model continue to predict a gradual slowdown in Namibia’s annual inflation rate over the remainder of year, before ending the year at around 4.8%.

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%.