The Namibian annual inflation rate shot up to 8.2% y/y in January, 0.9% higher than the 7.3% y/y recoded in December. Prices increased by 3.2% m/m, the largest monthly increase in the 14-year history of our data set. Annual inflation was mainly driven by housing, water, electricity and other fuel category which increased at a rate of 9.3% y/y and the food and non-alcoholic beverages category which increased by 13.2%. Overall prices in eight of the twelve basket categories increased at a faster rate than during the preceding month, three at a slower rate and one grew at a steady rate. At the end of January service inflation was notably higher than during the preceding month due to once off yearly increases. Prices for goods increased 8.1% y/y while services were 8.3% more expensive on a y/y basis.
Housing and utilities was the largest contributor to annual inflation, due to its large weighting in the basket and the seasonal effect of rental increases. Overall the housing category increased 7.6% m/m and 9.3% y/y. This resulted in a contribution of 2.7% to the annual inflation figure. The high monthly figure was largely due to rental payments which increased by 9.7% m/m, the largest monthly increase to date. Most of the other subcategories remained relatively unchanged m/m, but water supply, sewerage service and refuse collection is still increasing by 12.4% y/y while electricity is 6.7% more expensive than last January.
Food and non-alcoholic beverages, the second largest basket item, was the second largest contributor to annual inflation. Food inflation is currently running at 13.2% y/y, up from the 12.5% y/y figure seen in December. The sub-categories of food generally showed very high monthly increases of between 1.0% and 2.5%, while fruit and vegetable prices were up 3.6% m/m and 2.7% m/m respectively. On an annual basis, fish prices have increased by 23.3% y/y while confectionaries are 19.7% more expensive. The upwards pressure on food prices is mainly a result of the drought in Southern Africa which could ease as the rainy season reduces some the dependence on expensive imports.
Transport prices increased by 1.0% m/m and 5.2% y/y in January, as pump prices have increased by 20c for petrol and 30c for diesel. Given that oil prices are on an upward trajectory, we may see further increases in fuel prices and further rises in transport inflation. The Alcohol and tobacco category displayed increases of 5.8% y/y and 0.5% m/m. Tobacco prices increased by 1.3% y/y, while alcohol increased at a much quicker pace at 6.9% y/y. Furnishings was another contributor to overall annual inflation, increasing 2.5% m/m and 9.5% y/y.
Namibian inflation is now much higher than that of South Africa, and expectations are for high inflation rates to continue in both countries. South African inflation is expected to average 6.2% in 2017, according to the SARB’s January MPC forecast. These expectations are largely driven by a weaker real effective exchange rate and the pass though effect of higher Import prices. The effect of higher food inflation due to the drought, and the pass-through effect of South African food prices on Namibia will likely cause the double digit increases in food prices to continue in the short term, although likely to ease around April/May of 2017.
Due to expectations of high SA inflation, which remain outside of the target band for most of 2017, we will monitor the March MPC statement closely for a more hawkish SARB. However, given the low level of growth, which has been revised downwards to 1.1% in January, we do not anticipate repo rate increases in response to inflationary pressures in South Africa.
Annual inflation in Namibia averaged 6.7% in 2016, however given the surprisingly high monthly increases witnessed in January, inflation can be expected to accelerate sharply in 2017. The large monthly increase was driven mainly by rental increases of 9.7% m/m, the largest increase in the last 14 years. Thus, we have revised our inflation expectation for 2017 to average 7.9%, significantly higher than the 6.4% previously expected.