Annual inflation declined to 6.1% y/y in June, 0.2% y/y lower than in May, while prices increased by 0.1% m/m, similar to the price level increase witnessed in May. The slowdown in annual inflation was caused mainly by moderation in the price inflation levels of transport and alcoholic beverages and tobacco. Of the twelve basket items, four saw a higher annual inflation rate than the previous month, three remained relatively unchanged, while five categories saw lower rates of price increases. Prices for goods increased by 4.5% y/y while prices for services grew by 8.2% y/y.
Housing and utilities remains the largest contributor to annual inflation due to its large weighting in the basket and the effect of irregularly high rental increases of 9.7% in January. This category increased by 9.8% y/y but remained approximately unchanged month on month. Annual inflation for rental payments for dwelling remained at 9.6% in June and will likely remain this high for the rest of the year. Furthermore, the City of Windhoek has put into effect a 13% tariff increase on water consumption, effective the 1st of June, with a request for a 10% electricity tariff increase submitted to the Electricity Control Board (ECB) pending approval. With the increases in utilities now passed on to the consumer, we believe that this will most likely put upward pressure on this basket category going forward. We continue to expect the housing and utilities basket category to underpin overall inflation.
Food and non-alcoholic beverages, the second largest basket item in weighting, was the second largest contributor to annual inflation, accounting for 0.8% of the total inflation figure. Food and non-alcoholic beverage prices increased by 4.6% y/y, ticking up from the 3.6% recorded in May, still considerably below the peak of 13.2% witnessed in January. Bread and cereal prices have decreased by 2.8% y/y, while the price of vegetables decreased by 2.1% y/y and fruits now 6.3% more expensive on an annual basis.
Transport was the third largest contributor to annual inflation, accounting for 0.7% of the total 6.1% inflation figure. Transport prices increased by 5.0% y/y but remained flat month on month, with the yearly increase driven largely by the 5.8% y/y increase in the cost of operating personal transport equipment.
The alcohol and tobacco category displayed increases of 3.0% y/y with a decrease of 0.3% m/m in June versus 3.3% y/y and 0.1% m/m in May. The main driver in this basket category remains alcohol prices which increased by 3.2% y/y while tobacco was up 2.3% y/y. Inflation in this category remains very subdued despite the announcement of increased sin taxes in March.
Namibian inflation continues to decrease at a faster pace than was anticipated at the start of the year. A strengthening rand and a strong decline in food prices has seen inflation moderating substantially. Increased utilities consumption tariffs imposed by the City of Windhoek this month should change the dynamic towards a slight uptick in inflation going forward, this happening within the basket that is the largest contributor towards inflation.