Category Archives: Inflation

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%.

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.