NCPI – June 2018

The Namibian annual inflation rate edged up to 4.0% in June, following a rise in prices of 3.8% y/y recorded in May. Prices increased by 0.2% m/m. Of the twelve basket items, three saw a higher annual inflation rate than in the previous month, three remained unchanged, while six categories saw lower rates of price increases. Prices for goods increased by 3.8% y/y while prices for services increased by 4.2% y/y. The increase in prices for services was unchanged from the increase recorded in May, while goods inflation accelerated on an annual basis.

Transport, the third largest basket item, was the largest contributor to annual inflation, accounting for 1.0% of the total 4.0% annual inflation figure. Prices for transport rose 2.7% m/m and 7.2% y/y in June, up from the 0.9% m/m and 5.6% y/y figures seen in May. Prices related to the operation of personal transport equipment increased by 8.9% y/y in June, compared to the 6.2% y/y increase recorded in the preceding month. The price of both petrol and diesel increased by 60 cents per litre in June, 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.

The price of Brent Crude oil dropped by 6.9% on Wednesday to US$73.40 a barrel, the biggest daily decline in two years. The sell-off followed Libya’s announcement that it would boost supply by reopening four export terminals that had been closed since June. Oil prices have been volatile lately after the US has said that it would reinstate sanctions against Iran, a major producer. Wednesday’s decrease brings some relief as oil price increases has largely overshot expectations in 2018. This relief should filter through to Namibian consumers who have experienced a number of fuel price increases during the year. The decision not to increase fuel prices in July by the Ministry of Mines and Energy means that there are under-recoveries at the pumps at present. While fuel price increases towards the end of the year are expected, Wednesday’s decrease in the oil price may result in lower increases than what would otherwise be expected.

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 3.2% y/y, but remained relatively unchanged month-on-month. The regular maintenance and repair of dwellings subcategory recorded an increase in prices of 2.3% y/y, which is a somewhat slower rate of increase than the 2.6% y/y registered the previous month. Month-on-month, prices in this subcategory increased by 0.7%. The electricity, gas and other fuels subcategory recorded slower price increases for a third consecutive month at 4.9% y/y in June. The rest of the subcategories remained unchanged on both a monthly and annual basis.

Alcoholic beverages and tobacco, the fourth largest category, saw marginally slower price increases of 5.1% y/y and unchanged prices month-on-month. Prices of alcoholic beverages rose 5.3% y/y while tobacco prices increased by 4.1% y/y. Food inflation decelerated to 3.8% y/y in June from 3.9% y/y in May. Low food inflation, along with low rental price increases recorded in January, greatly contributed to maintaining the inflation rate at well below average levels for Namibia.

Namibian annual inflation at 4.0% has slowly been ticking up since April, and our expectations are that this trend will continue going forward. Most of June’s increase in the annual inflation figure was caused by the increase in the fuel price of 60 cents per litre. Second round effects will influence other basket items such as food in the coming months.

South African annual inflation came in at a surprising 4.4% in May, slowing somewhat from April’s reported 4.5%. The cumulative effects of increases in fuel prices and VAT was expected to push up the inflation figure.  As Namibia imports most of its inflation from South Africa, the fact that inflation remains in the lower half of the SARB’s target band is positive news for Namibian consumers given the current domestic economic challenges.

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