The Namibian annual inflation rate increased to 5.3% in January, up 1.6 percentage points from 3.7% in December. On a month on month basis, prices spiked 2.4%, the largest monthly increase recorded in our history dating back to 2002. On a year on year basis, five of the twelve basket categories grew at a slower rate in January than in December while the seven remaining categories accelerated, pushing up overall inflation. Transport prices increased for the first time in twelve months 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, started to wear out. However, the biggest contributor to inflation on a monthly and on an annual basis were price increases of rental payments for dwellings by both owners and lessees in the housing utilities category.
The three heavy weighted categories in the basket that experienced accelerated annual inflation were food & non-alcoholic beverages, housing utilities and transport. Food and non-alcoholic beverages inflation was driven by the price increases across the majority of the sub-components, with only meat, fish and sugar prices rising relatively less quickly. The food price increases can largely be ascribed to the drought currently experienced in Namibia and South Africa.
The annual inflation rate for the category housing, water, electricity, gas & other fuels increased significantly from 2.7% in December to 7.6% in January and increased 5.9% on a monthly basis. Accelerating price increases in this category was largely driven by rental payments for dwellings by both owners and lessees which increased to 7.2% in January, compared an average of 1.7% over the last two years. As we highlighted in previous reports, CPI as reported by the NSA seems to be out of line with the price pressures that consumers are actually experiencing. Anomalies such as low housing inflation stand out as examples of this. Anecdotal evidence suggests that rental prices rise by 8% – 10% per year, and finance costs have risen by approximately 7% over the last year, yet the official data states the average inflation was only 1.7% over the last two years. The inflation rate has been affected by these anomalies to a large extent, which is concerning as the repercussions of the drought and the weak exchange rate has not yet taken full effect on the inflation rate.
The annual inflation rate for the transport basket category turned positive for the first time in twelve months as the effects of the drop in the price of oil over the past year is starting to wear out, partially due to the severe rand depreciation towards the end of 2015. The category continued to contract on a monthly basis, however, exhibiting year on year inflation of 0.9% compared to an average contraction of 2.1% in 2015. 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, with the effects of the drop in the price of oil over the past year and the knock on effects thereof starting to wear out, we should see higher inflation this year.
In conclusion, we expect inflation to pick up in the first half of 2016 as the full benefit of cheap oil is reached and the weak currency causes 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.