The Namibian annual inflation rate increased to 7.3% in October, up from the 6.9% recorded in September. Prices increased by 0.5% month on month. The yearly increases were largely driven by the housing, water, electricity and other fuel category which increased at a rate of 7.8% y/y, the food and non-alcoholic beverages category which increased by 11.7% y/y and the alcohol and tobacco category which was up 6.0% y/y. Overall five of the 12 basket categories increased at a faster rate than the preceding month, while two remained unchanged.
Housing and utilities, the largest basket item was also the largest contributor to inflation, making up 2.1% of the total annual figure. This category increased at a rate of 0.3% m/m and 7.8% y/y. Water supply, sewage services and refuse collection increased by 0.8% m/m and 13.1% y/y. The high year on year figure is a largely a result of the City of Windhoek increasing water tariffs in July, but the month on month increases continue unabated. Rental payments and maintenance continue to grow at 7.0% and 6.1% respectively, in line with the general rate of inflation.
Food and non-alcoholic beverages, the second largest basket item, and the second largest contributor to annual inflation, increased by 11.7% year on year, down slightly from the 12% y/y figure seen in September. The month on month figure amounted to a 0.6% increase. The sub-categories of food generally showed moderate increases of between 0.3% and 0.5%, except for a 1.4% m/m increase in fruit, a 3.5% m/m increase in the price of fish and a 4.3% increase in the price of coffee and tea. Strangely, the price of dairy and oils & fats decreased by 1.4% m/m and 1.2% m/m respectively. The upwards pressure on food prices are mainly a result of the drought in Southern Africa which will hopefully ease as the rain season for 2016/17 begins.
Alcohol and tobacco displayed increases of 6.0% y/y and 0.6% m/m. Interestingly, tobacco prices decreased by 0.1% y/y, while alcohol increased in line with general prices at 7.5%.
Transport prices increased by 0.1% m/m after decreasing by 1.1% m/m in September. Purchase of vehicles decrease by 0.3% m/m and public transport is also 0.1% cheaper m/m. Over a one year period, vehicle prices are still up by 10.6%. Furniture prices increased by 0.7% m/m and 7.9% y/y, driven by increases in carpets and appliances, which increased by 3.5%m/m and 3.9% m/m, respectively. Other noteworthy items include telecommunications which increased by 4.0% on a month on month basis, and 6.0% on an annual basis, and clothing materials which increased by 2.5% m/m and 18.4% y/y.
It seems Namibian inflation is continuing to outstrip SACPI. However, inflation expectations remain high in both countries. South African inflation is expected to average 6.4% in 2016 and 5.8% in 2017, as per figures from the South African Reserve Bank. These expectations are largely driven by currency weakness and the pass though effect of higher Import prices. The effect of higher food inflation due to the drought also has a negative effect. Earlier this year the Bank of Namibia released a study by Dr. Postrick Mushendami which demonstrated that South African food inflation tends to have significant effects on the inflation in Namibia. Due to inflation expectations, which return to the target band and low level of growth we do not anticipate repo rate increases in response to inflation from the MPC.
Our expectations of Namibian inflation for 2016 is for an average of 6.6% and for 6.4% in 2017. The main reason for relatively high level being the continual increases seen in administered prices, sustained increases in rentals and housing, and the continuing pass-through effect of high food import prices.