Namibian annual inflation eased further to 3.4% in March, from 3.6%in February. On a monthly basis weighted prices rose by 0.4%. The majority of CPI basket categories saw rates of inflation fall on an annual basis, with alcoholic beverages & tobacco, furniture, health and hotels being the only categories that experienced year on year increases in the rate of inflation during March. On a monthly basis the categories experienced price increases across the board contributing to anoverall increase in prices for the month.
Transport prices continued to contract, down 3.7% during March after falling2.9% in February. Within the basket category, operation of personal transportation equipment, was the only subcategory to experience a decline. The two remaining categories, purchases 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 and remained unchanged in March, driven by current low oil prices. However, fuel prices have been increased by the Ministry of Mines and Energy during April, and one might see transport inflation to retrace in the April figures.
The alcoholic beverages and tobacco category continues to see prices rise at a more rapid rate than most of the basket categories. Prices increased 8.6% y/y during March up from 7.7% in February and was the single biggest contributor to the overall rise in prices experienced during the month. It is not likely to experience much slowdown going forward due to South Africa raising sin taxes, which flowed through to Namibia during their last budget announcement.
Food and non-alcoholic beverages inflation eased from 6.6% in February to 5.5% in March. Price increases in this category were mainly observed in the sub components of sugar, honey, jams (up 3.3%), vegetables (up 2.7%), oils and fats (up 1.4%), soft drinks and juices (up 0.9%) and fruit (up 0.6%). 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.
While we expected inflation to slow further in March, we expect inflation to normalise somewhat in April 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 in South Africa and lack of rain in large parts of Namibia resulting in losses in agricultural production, as well as Namibia and South Africa raising fuel prices 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.