According to the Namibia Statistics Agency, the Namibian annual inflation rate unexpectedly fell to 3.3% in September, down from 3.4% in August. On a month on month basis, prices rose by 0.1% compared to 0.3% in August. On a year on year basis, only a third of the basket categories prices grew at a faster rate in September than in August, while the other two thirds saw price pressures slowing, bringing down overall inflation. Year on year inflation is again well below average, largely due to a drop in the price of oil over the past year, and the knock on effects this has on prices in the heaviest weighted basket item (housing, water and electricity, and gas and other fuels), which is experiencing prolonged inflation of well below the basket average. 12 month average inflation reached a fresh low of 3.7% in September, and has been coming down steadily since November 2014.
The four basket categories that experienced accelerated annual inflation were food and non-alcoholic beverages, alcoholic beverages and tobacco, communications, as well as miscellaneous goods and services. Accelerating price increases in the food and non-alcoholic beverages basket category was spread relatively evenly amongst the components of this category, with bread and cereal prices rising relatively more quickly than the rest. Both alcoholic beverages and tobacco prices increased marginally, dragging up average inflation somewhat. Communications prices experienced a relatively large price increase of 1.9% year on year and 1.6% month on month making it the basket category exhibiting the highest inflation for the month.
The transport basket category remains below overall inflation, thus dragging down the average rate, exhibiting year on year inflation of -2.2% and month on month inflation of -1.0%. Transport is the third largest basket category by weighting and as such has a large impact on overall inflation. The deflation experienced by this basket category is largely due to the operation of personal transportation equipment, which is becoming less expensive as fuel prices decline. Prolonged lower fuel prices due to the oil rout have provided consumers with some respite worldwide and in this Namibia is no exception. The effects of cheap transportation flow through to many other basket categories, as second and third round effects, and in thus may contribute to lower overall inflation longer term.
Inflation on the healthcare, and hotels, cafes and restaurants, has slowed on a year on year basis and deflation was experienced on a month on month basis. On a year on year basis the medical products, appliances and equipment subcategory of the health basket was responsible for the decline in the rate of inflation. In the hotels, cafes and restaurants segment of the basket, the contributor to negative monthly inflation and the slowdown in annual inflation was the accommodation services sub-category. This is a result of off peak season price reductions by accommodation providers.
The slowdown in annual inflation came as a surprise to us as a weak rand and fuel prices off their lows, as well as the pass-through of base effects, suggest that annual inflation should be picking up and not slowing. An explanation for this decline in annual inflation could be that transportation service providers are slow to adapt to declines in fuel prices. Prolonged cheap fuel is priced into costs over an extended period of time due to the customer’s dependency on the service. This results in prolonged periods of deflation in the transportation basket category which drags on overall inflation due to weak inflation in the rest of the basket categories, especially inflation on housing costs. Despite this we continue to expect inflation to rise as we enter the last quarter of the year.
It is worth mentioning that the price pressures experienced by Namibian, and particularly urban, consumers in Namibia has decoupled from the numbers reported by the NSA with regards to inflation. Moreover, wage settlements in the country, including those of the NSA itself, are unlikely to reflect the reported NCPI numbers, but be significantly higher than such. However, providing a single inflation figure that is reconcilable to the (undefinable) average Namibian is all but impossible, given the vastly different consumer patterns in the country, largely due to the income inequality of the populous.
Nevertheless, major anomalies, such as low housing inflation levels stand out as examples of areas in which the current survey methodology may not be adequately capturing price pressures. Anecdotal evidence suggests that rental prices rise by 8% – 10% per year, and finance costs have risen by approximately 7.5% this year. The official number for rent price inflation (owners and renters) is just 1.5% over the last year.
