Namibian annual inflation fell to 4.5 percent in January, from 4.6 percent the preceding month. On a monthly basis, weighted prices rose by 0.8 percent. The consumption categories experiencing the largest price increases over the past 12 months were alcoholic beverages and tobacco (7.5%), miscellaneous goods and services (6.6%), and food (6.5%). The drop in inflation over the period is attributed to the decline in food inflation and the drop in transport inflation, driven by lower fuel prices.
Food and non-alcoholic beverages have seen a steady decline in year on year inflation over the last seven months (down from 10.1% to 6.5%), which contrasts with alcoholic beverages and tobacco which have experienced increased year on year inflation since June last year (up to 7.5% from 6.1%). Housing, water, electricity, gas and other fuels, the largest weighting in the CPI basket, remained roughly in line with December’s year on year inflation of 3.6 percent.
Transport inflation continued to decline in January, to 1.5 percent, from 2.9 percent in December. The continued fall in this basket category was expected given the oil price decline. Transport inflation reached 10.7% in June last year as the oil price peaked. Since then the price of oil has fallen over 50% driving a decline of 21% in the price of fuel within Namibia thus far. We expect the fuel price to decline further over the coming months as the oil price stays depressed and this should lead to deflation in the Transport category of the NCPI basket within the next couple of months.
The steady fall in food and other beverage inflation is likely to continue for the greater part of the year as lower fuel prices impact production input costs. 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. We are unlikely to see deflation in this basket category as fuel is only one of the many inputs into food and beverage production.
Of the four biggest categories of the NCPI basket only food and non-alcoholic beverages and alcoholic beverages and tobacco currently have inflation levels above the basket average. Considering that we expect food and non-alcoholic beverages inflation to slow, due to the lagged transmission mechanism between low fuel prices and food inflation slowing, and the other determining categories to stay depressed, we expect a further decline in inflation going forward for at least the first half of the year. It should be stressed that the decline in inflation is due to supply side factors and therefore should not be seen as a drop in demand from the Namibian consumer. Supply side inflation respite should benefit the consumer and support GDP growth.