Namibian annual inflation eased further to 2.9% in April, from 3.4%in March. On a monthly basis weighted prices rose by 0.5%. The majority of CPI basket categories saw rates of inflation fall on an annual basis, with Clothing, Health, Hotels and Miscellaneous being the only categories that experienced year on year increases in the rate of inflation during April. On a monthly basis, except for clothing, housing utilities and furniture, all the categories experienced price increases contributing to an overall increase in prices for the month.
Transport prices continued to contract, down 4.2% y-o-y in Aprilafter falling 3.7% y-o-yin March. Within the basket category, operation of personal transportation equipment was the only subcategory to experience a price contraction, while inflation of public transportation services slowed significantly and purchase of vehicles 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, remaining changed thereafter in March,driven by low oil prices.However, fuel prices have been increased by the Ministry of Mines and Energy during April.
The alcoholic beverages and tobacco category continues to see prices rise at a more rapid rate than most of the basket categories. Prices increased 7.1% y/y in April, down from 8.6% in March and was the single biggest contributor to the overall rise in prices experienced during the month. It is not likely to experience much slowdown going forward due to South Africa raising sin taxes, which flowed through to Namibia during their last budget announcement.
Food and non-alcoholic beverages annual inflation eased from 5.5% in March to 5.2% in April. Price increases in this category were mainly observed in the sub components of sugar, honey, jams (up 5.7%), vegetables (up 4.9%), fish (up 4.9%) and meat (up 2.9%). The lag between the drop in fuel prices and food inflation slowing tends to be between 12 and 18 months and as such should start kicking in before the second half of the year.
While we expected inflation to slow further in April, the extent of this decline was unexpected. Going forward, we expect inflation to normalise somewhat in May and June with prices growing again in the latter half of the year. Low fuel prices should see food and non-alcoholic beverage inflation slowing towards the final quarter of the year 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 below trend 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. In addition, the current weak rand will have an inflationary effect on imported goods which will add to any upside surprises in the coming months.