NCPI – July 2018

The Namibian annual inflation rate increased to 4.5% in July, following the 4.0% y/y increase in prices recorded in June. Prices increased by 0.5% m/m, a notable acceleration from the 0.2% increase recorded in June. On an annual basis prices in five of the twelve basket categories rose at a quicker rate in July than in June, somewhat offset by lower rates of inflation in four categories, while the rate of inflation in three categories remain unchanged. Prices for goods increased by 4.6% y/y while prices for services increased by 4.3% y/y. This is the first month since December 2016 in which goods inflation was higher than services inflation.

Transport accounted for 1.2% of the total 4.5% annual inflation figure in July, making it the largest contributor this month. On a monthly basis, transport prices increased by 0.6% in July, which is slower than the 1.6% m/m increase recorded in June. However, on an annual basis, the 8.9% increase in transport prices is faster than the 7.2% y/y growth recorded in June. Prices related to the operation of personal transport equipment increased by a hefty 11.8% y/y, compared to the 8.9% y/y increase recorded in the preceding month. The price of both petrol and diesel increased by 10 cents per litre in July, contributing to the jump in the overall category. Price increases related to the purchases of vehicles and prices for public transportation services were relatively unchanged month-on-month and year-on-year. Both of these sub-categories are under threat of higher inflation in the future due to currency weakness and taxi union demands.

The price of Brent Crude oil has been dropping since the beginning of July due to a waning global economic growth outlook and reports of crude inventories increasing in the US. This should bring some relief as oil price increases have overshot expectations in 2018 thus far. We do, however, expect fuel price increases towards the end of the year as there are currently under-recoveries present at the pumps. The recent currency weakness is also likely to have an impact on the fuel price.

The Housing and utilities category was the second largest contributor to annual inflation, due to its large weighting in the basket. Price inflation for this category came in at 0.8% m/m and 3.7% y/y. The acceleration in inflation for this category is due to a raft of price increases introduced by several of the country’s municipalities in July. The electricity, gas and other fuels subcategory recorded an increase in prices of 8.4% y/y, which is a faster rate of increase than the 4.9% y/y registered the previous month. Month-on-month, prices in this subcategory increased by 3.5%. The water supply, sewerage service and refuse collection subcategory recorded slower price increases at 6.1% y/y in July, while the regular maintenance and repair of dwellings subcategory recorded price increases of 3.6% y/y, up from 2.3% y/y recorded in June.

The alcoholic beverages and tobacco category recorded price increases of 1.9% m/m and 6.8% y/y, an increase over the figures seen in the prior month. Prices of alcoholic beverages rose 7.5% y/y while tobacco prices increased by 3.6% y/y.

Namibian annual inflation of 4.5% in July is the highest level for the year thus far. For the second month in a row, most of the increase in the annual inflation figure was driven by increases in transportation costs. As we expected, the Bank of Namibia’s Monetary Policy Committee (MPC) today announced their decision to leave the Repo rate unchanged at 6.75%. The MPC said the current rate remains appropriate to support domestic growth, while maintaining the currency peg. As at the 31st of July, the stock of foreign reserves stood at N$32.6 billion, representing a 9.9% m/m increase. This, the bank says, is estimated to be enough to cover 5.3 months of imports of goods and services.

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