Namibian annual inflation fell to 3.6 percent in February, from 4.5 percent in January. On a monthly basis, weighted prices fell by 0.2 percent. Food and non-alcoholic beverages, alcoholic beverages and tobacco, and miscellaneous goods and services continue to experience elevated levels of annual price increases. The aforementioned basket categories, along with hotels, cafes and restaurants, were the only categories that experienced year on year increases in the rate of inflation during February. The majority of CPI basket categories saw rates of inflation fall on an annual basis. On a monthly basis the clothing and footwear, transport, and communications categories experienced price declines contributing to an overall decline in prices for the month.
Transport prices fell by 2.9% during February after falling 1.5% in January, and was the single biggest contributor to the overall drop in prices experienced during the month. Within the basket category, operation of personal transportation equipment, was the only subcategory to experience a decline. The two remaining categories, purchase of vehicles and public transportation services, 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 driven by current low oil prices. The subcategory’s large weighting resulted in the transport category as a whole experiencing deflation on a month on month basis.
The Communications basket category experienced price deflation during February although this is due to the uncharacteristically high inflation experienced during January. For 11 months during 2014 this category experienced year on year price deflation, with only December experiencing a very slight rise in year on year prices. February is only the third month in the last 15 demonstrating inflation on a year on year basis. Clothing and footwear, the last of the three basket categories to exhibit deflation on a monthly basis fell 0.4% but rose 1.6% on a year on year basis, well below the overall inflation level. The three deflationary categories make up approximately 21% of the CPI basket which illustrates the low level of inflation experienced by the remaining categories during February.
Food and non-alcoholic beverages experienced above average monthly price increases and the rate of inflation rose on a year on year basis for the first time in 8 months. The lag between the drop in fuel prices and food inflation slowing tends to be between seven and eleven months and as such should start kicking in before the second half of the year. The alcoholic beverages and tobacco category continues to see prices rise at a more rapid rate than most of the basket categories. Year on year inflation of 7.7%, up from 7.5% in January, is not likely to experience much slowdown going forward due to South Africa raising sin taxes during their last budget announcement.
While we expected inflation to slow further in February, the magnitude of this drop was unexpected. We expect inflation to normalise somewhat in March with prices growing in the latter half of the year. Low fuel prices should see food and non-alcoholic beverage inflation slowing towards June 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 or near these low 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. The current weak rand will have an inflationary effect on imported goods which will add to any upside surprises in the coming months.