Namibian annual inflation fell to 4.6 percent in December, from 5.0 percent the preceding month. On a monthly basis, weighted prices fell by 0.2 percent. The consumption categories experiencing the largest price increases over the past 12 months were education (8.1%), alcoholic beverages and tobacco (7.1%) and food (7.0%).
On a weighted basis, largely due to heavy weightings in the NCPI basket, over 75 percent of total inflation stemmed from food and non-alcoholic beverages, alcoholic beverages and tobacco, housing, water, electricity, gas and other fuels and transport.
Transport inflation continued to decline in December, to 2.9 percent, from 3.9 percent in November. This represents, however, an even more notable decline from the level of 10.7 percent just seven months earlier, recorded in June. Given the magnitude of the fall in oil prices witnessed over recent months, however, it is becoming increasingly likely that deflation will be seen in the transport category of the NCPI basket in the coming months. This is primarily due to the fact that despite the 14% decline in the price of diesel and petrol from their August highs of N$12.42 and N$12.29 per liter, respectively, over the same period, the cost of oil in Rand/NAD, has fallen by over 55%. As such, major over-recoveries are being seen at the pumps in the country, which recoveries will only increase over coming months, and are thus likely to be passed on to the consumer. As such, domestic pump prices are likely to fall by at least N$2 per liter over the next quarter, taking price back to levels last seen in early 2012.
Interesting to note is the lagged effect of falling fuel prices on inflation. While pump price changes are rapidly (same month, or one month thereafter) noticed in inflation figures, the price of oil in Rand is a good three-month leading indicator of transport inflation. This is largely due to the fact that it takes between two and three months for falling oil prices to translate to falling pump prices, which in turn translate into falling transport inflation.
Also interesting to note is that while falling pump and oil prices are fairly rapidly passed along to the transport inflation sub-category of “operation of personal transport inflation”, the category of “public transportation services” sees the benefits of falling fuel prices much more slowly, with a nine-month lag on the transmission of petrol price changes to consumers, and a three month lag in the transmission of the change in diesel prices to consumers. The reason for this is likely to be, primarily, that most public transport prices are administered, and thus set quarterly, or annually. The reason for the slower transmission of petrol prices to consumers is that most petrol-powered public transport is made up of taxi and minibus services, which adjust prices less regularly than do the municipalities for their diesel-powered bus services.
As with transport inflation, food inflation is partially determined by oil/fuel prices. However, the transmission mechanism for changes in prices is significantly more slow than is seen in transport inflation, thus terming these price changes “second round effect”, as opposed to the “first round effects” seen in transport inflation. In Namibia, the second round effects of lower fuel prices take between seven and 11 months to manifest, usually resulting in lower growth in inflation, rather than deflation (as can be witnessed for transport inflation). Food inflation tends to fall as a result of lower fuel prices as both food production and transport rely on fuel as a key input. The former, or course, manifests less quickly than the latter.
While inflation declined dramatically in December, further declines are expected through the first quarter of 2015, due to the falling fuel price, as well as the aforementioned lagged transmission of already low oil prices to the price of consumer goods in the country. On the demand-pull-side, however, inflation remains relatively high, due to the buoyant state of the Namibian economy, and thus the strong demand for local services, particularly.