Category Archives: Economic Research

Economic Research

NCPI September 2022

By | | ,
Comments Off on NCPI September 2022

Namibia’s annual inflation rate slowed marginally to 7.1% y/y in September from 7.3% y/y in August. Prices in the overall NCPI basket rose by 0.1% m/m. On a year-on-year basis, overall prices in nine of the twelve basket categories rose at a quicker rate in September than in August, two recorded a slower rate of inflation and one recorded prices consistent with August. Prices for goods increased by 9.8% y/y, while prices for services increased by 3.3% y/y.

Predictably, the transport category was the largest contributor to the annual inflation rate in September, contributing 2.8 percentage points to the annual inflation rate. The category recorded a price decline of 1.6% m/m, but transport prices are still 19.5% higher than a year ago. Two of the three sub-categories recorded slower inflation on a month-on-month basis with the operation of personal transport equipment sub-category recording a decrease of 2.1% m/m, but an increase of 30.0% y/y, on the back of the Ministry of Mines and Energy’s decision to decrease fuel prices at the beginning of September. Petrol prices were cut by 120 cents per litre and diesel prices by 65 cents per litre. Petrol prices were cut by a further 100 cents per litre in the beginning of October, however given that most of the economy operates on diesel (which did not see a change in price this time round), we expect inflationary pressure to persist. The purchase of vehicles sub-category recorded a decrease in inflation of 0.9% m/m, but rose 3.2% y/y. Prices of public transportation services remained steady on a month-on-month basis, but rose 6.4% y/y.

Food & non-alcoholic beverages was the second biggest contributor to the annual inflation rate in September, contributing 1.7 percentage points. Overall, prices in this basket item rose 0.6% m/m and 9.3% y/y, the quickest year-on-year increase since February 2017. All thirteen sub-categories in this basket item recorded price increases on an annual basis. The largest increases were recorded in the prices of oils and fats which rose by 25.5% y/y, followed by fruit which recorded an increase of 20.4% y/y, mainly attributable to the increase in prices of avocados, citrus fruits, and dried fruits.

Alcohol & tobacco inflation quickened to 5.6% y/y in September, from the 5.2% y/y increase recorded in August. On a month-on-month basis, prices of the basket category rose by 0.8%. The prices of alcohol beverages rose by 0.7% m/m and 5.8% y/y, while the prices of tobacco products increased by 1.2% m/m and 4.5% y/y.

Namibia’s annual inflation rate of 7.1% in September followed three consecutive months of quicker inflation prints and was mainly attributable to the decrease in fuel prices. The transport-, food- and alcohol and tobacco categories remain the largest contributors to inflation, accounting for 75% of the Namibian inflation rate in September, with the remaining 9 categories contributing the other 25%. South Africa’s annual inflation rate has similarly slowed in August, but at 7.6% y/y continues to trend above the SARB’s 3-6% target band and means that we will see further rate hikes by the SARB’s MPC. We expect the Bank of Namibia to reciprocate to any decisions taken by the SARB. IJG’s inflation model currently forecasts Namibia’s annual inflation rate to remain elevated for the remainder of 2022, and for it to end the year at around 7.0%.

PSCE – August 2022

By | | ,
Comments Off on PSCE – August 2022

Overall

Private sector credit (PSCE) increased by N$505.3 million or 0.43% m/m in August, bringing the cumulative credit outstanding to N$116.7 billion. On a year-on-year basis, private credit sector credit grew by 11.2% y/y from a relatively low base a year ago. Normalising for the steep rise in claims on non-resident private sectors over the past 8 months which mainly relates to interbank swaps sees annual PSCE grow by only 4.4% y/y. We view this as a more accurate picture of credit extension and thus exclude the swap transactions from our analysis going forward. On a 12-month cumulative basis N$4.79 billion worth of credit was extended to the private sector. Corporates and individuals took up N$3.52 billion and N$1.26 billion respectively.

Credit Extension to Individuals

Credit extended to individuals grew by 0.5% m/m and 2.1% y/y to N$62.91 billion in August from N$61.65 billion a year ago. Overall, annual growth in credit extensions to individuals slowed in August when compared to the revised 2.2% y/y growth rate reported for July. The Bank of Namibia (BoN) attribute the decline to lower demand in all the credit categories but instalment and leasing sales. Mortgage loans to individuals rose by 0.3% m/m and 1.9% y/y. Overdraft facilities increased by 1.1% m/m, but contracted by 5.6% y/y. Other loans and advances (consisting of credit card debt, personal- and term loans) climbed by 1.1% m/m and 5.1% y/y. Instalment and leasing sales rose by 0.9% m/m and 1.2% y/y.

Credit Extension to Corporates

Credit extension to corporates grew by 0.3% m/m and 8.3% y/y in August, bringing the cumulative corporate credit outstanding to N$46.23 billion. Overall, annual growth in credit extensions to businesses accelerated in August when compared to the revised 6.4% y/y growth rate observed last month. The BoN ascribed the increase to rising demand for overdraft credit and other loans and advances by corporations in the mining and services sector. Overdraft facilities to corporates grew by 2.1% m/m and 0.1% y/y, following a 9-month consecutive year-over-year decline. Other loans and advances climbed by 0.8% m/m and 19.4% y/y. Mortgage Loans declined by 1.7% m/m but rose by 1.2% y/y. Instalment and leasing sales increased by 1.4% m/m while annual growth for this credit category remained steady at 14.9% y/y.

Banking Sector Liquidity

The overall liquidity position of the commercial banks saw a continued decline in August, dropping by N$6.35 billion to an average of N$6.21 billion, and ended the month at N$3.86 billion. The decline in the market cash positions is partly attributed to other financial corporations’ withdrawals, according to the BoN. The repo balance in contrast rose to N$529.7 million in August from N$293.0 at the end of July.

Reserves and Money Supply

The BoN’s latest figures show broad money supply (M2) increased by N$4.97 billion or 4.0% y/y to N$128.0 billion but slowed on an annual basis compared to the 11% y/y growth rate recorded in July. According to the BoN, the decrease in M2 growth was due to a decline in both the net foreign assets and domestic claims of the depository corporations. The drop was further attributed to a decline in transferable deposits coupled with a contraction in other deposits over the review period. The BoN’s official reserve stock contracted by 4.6% m/m or N$2.24 billion to N$47.0 billion. The BoN ascribed the decline in the international reserves stock to increased foreign currency outflows for import payments during the review period.

Outlook

Despite seeing PSCE growing at its fastest rate since the pandemic on a normalised basis, growth remains well below the levels observed prior to the pandemic. We expect PSCE growth to remain subdued over the short to medium term while the central bank maintains a restrictive monetary policy and continues to raise interest rates to fight rising inflation. We expect the BoN to hike interest rates by a further 75 basis points at its next MPC meeting scheduled for 26 October to stay at pace with the interest rate hikes by the SARB. The SARB hiked its repo lending rate by 75 basis points last month. While we should see commercial banks become more willing to extend credit in the rising interest rate environment, as they experience margin expansion, demand for credit would not necessarily follow suit. The private sector has endured a lot of financial hardship over the past couple of years and there are probably fewer households and entities with the ability to take up new credit from Banks despite debt remaining relatively inexpensive by historic standards. The private sector may also be unwilling to commit to long-term expensive debt under the current lackluster economic circumstances. Therefore, we expect demand for credit to remain low while the supply of credit is set to improve.

NCPI August 2022

By | | ,
Comments Off on NCPI August 2022

Namibia’s annual inflation rate ticked up to 7.3% y/y in August, following the 6.8% y/y increase in prices recorded in July. August’s annual CPI rate was the quickest increase since February 2017. On a month-on-month basis, prices in the overall NCPI basket rose 0.3% m/m. On an annual basis, overall prices in six of the twelve basket categories rose at a quicker rate in August than in July, three categories recorded slower rates of inflation and three categories recorded prices consistent with the prior month. Prices of goods increased by 10.2% y/y, while prices for services increased by 3.3% y/y in August.

Transport continues to be the largest contributor to the annual inflation rate, accounting for 3.3 percentage points of the total 7.3% y/y inflation rate in August. Prices in the transport category rose 0.2% m/m and 23.2% y/y, the quickest year-on-year increase in our database stretching back to 2003. The three subcategories in the transport basket items all recorded increases on a month-on-month and year-on-year basis. The operation of personal transport equipment subcategory, which recorded price increases of 0.2% m/m and 35.4% y/y, continues to fuel most of the inflation in this basket item, with global oil prices remaining elevated. The Ministry of Mines and Energy’s announcement at the beginning of September to cut petrol prices by 120 cents per litre and diesel prices by 65 cents per litre should ease inflation of the transport category somewhat going forward, although fuel prices remain considerably higher than they were last year. The purchase of vehicles subcategory recorded inflation of 0.5% m/m and 5.5% y/y. Prices of public transportation services rose were steady month-on-month but rose 6.4% y/y.

Food & non-alcoholic beverages, the second largest basket item by weighting, was the second largest contributor to the annual inflation rate in August, contributing 1.6 percentage points. Prices in this basket item rose by 0.8% m/m and 8.8% y/y, the quickest year-on-year increase since February 2017. As has been the case in the past seven months, all thirteen sub-categories recorded price increases on an annual basis. The biggest increases were observed in the prices of oils and fats which rose by 26.1% y/y, followed by fruit which recorded prices increases of 20.0% y/y.

Alcohol & tobacco inflation slowed from 5.4% y/y in July to 5.2% y/y August. On a monthly basis, prices in the basket item decreased by 0.3% m/m. The prices of alcoholic beverages decreased by 0.2% m/m but rose by 5.4% y/y, while tobacco prices fell by 0.9% m/m but rose by 4.5% y/y.

The annual inflation rate in Namibia continues to rise and as mentioned earlier, August’s rate was the quickest since February 2017. While the rate is high, it is by no means extraordinary for Namibia, as it has reached (and breached) the 7.0% level a couple of times over the past two decades. Unsurprisingly, transport and food prices remain the main drivers of the Namibian inflation rate, contributing 68% to the country’s annual rate in August. The fuel price cuts announced at the beginning of the month should ease inflation pressure somewhat, but risks remain to the upside. South Africa’s inflation rate of 7.8% y/y in July continues to trend above the SARB’s 3-6% target band and expectation are that its MPC will hike rates by between 50-75bps in September. The BoN will respond in kind to any decision taken by the SARB. IJG’s inflation model currently forecasts the annual inflation rate to remain elevated for the remainder of 2022, and for it to end the year at around 7.1%.