The Namibian annual inflation rate increased to 6.1% in February, up 0.8 percentage points from 5.3% in January. On a month on month basis, prices continued to rise, up 0.6% after the 2.4% spike seen last month. On a year on year basis, six of the twelve basket categories grew at a slower rate in February than in January while the other half accelerated, pushing up overall inflation. Transport inflation spiked during February as the effects of the drop in the price of oil over the past year, and the knock on effects thereof on the rest of the basket has worn out. However, the biggest contributors to inflation on a monthly and on an annual basis were price increases of food and non-alcoholic beverages and housing utilities.
The three heavy weighted categories in the basket that experienced accelerated annual inflation were food & non-alcoholic beverages, alcoholic beverages & tobacco and transport. Food and non-alcoholic beverages inflation was driven by the price increases across the majority of the sub-components, with only milk, cheese & eggs, non-alcoholic beverages and coffee, tea & cocoa prices rising relatively less quickly. The food price increases can largely be ascribed to the drought currently experienced in Namibia and South Africa as is reflected by price increases of fruit, vegetables and grain products such as bread & cereals.
The annual inflation rate for the category alcoholic beverages & tobacco increased from 7.5% in January to 7.9% in February and increased 0.6% on a monthly basis. Accelerating price increases in this category was largely driven by alcoholic beverages which increased to 8.3% in February, slightly offset by prices of tobacco easing to 6.7% in February, down from 7.4% in January. On the back of the announcement by the Minister of Finance that sin-taxes have been increased, we expect prices of alcoholic beverages & tobacco to accelerate further in March.
The annual inflation rate for the transport basket category spiked to 4.7% in February after turning positive in January for the first time in twelve months. The reason for this jump is primarily due to base effects, as the effects of the drop in the price of oil over the past year have now worn out. Transport is the third largest basket category by weighting and as such has had a large impact on overall inflation. The prolonged low fuel prices, due to the oil rout, have provided consumers with some price relief worldwide, and to some extent in Namibia as well. The effects of cheap transportation flow through to many other basket categories, and in this way contributed to lower overall inflation. However, we expected to see higher inflation as the effects of the drop in the price of oil over the past year and the knock on effects thereof wear out.
In conclusion, we expect inflation to accelerate further in 2016 as the full benefit of cheap oil has worn out with the weak currency causing import prices to rise. Looming drought conditions as well as increasing utilities costs should further see inflation pick up in basket categories such as food and non-alcoholic beverages, and alcoholic beverages and tobacco and housing.