NCPI – September 2017

Annual inflation ticked up in September following a two-month consecutive rise in prices of 5.4% y/y. Inflation increased to 5.6% y/y in September, with an increase in fuel pump prices put through early in the month contributing towards the uptick. On a year on year basis, prices in five of the twelve basket categories rose at a quicker rate in September than in August, somewhat offset by lower rates of inflation in five categories, while the rate of inflation in two categories remained unchanged. Prices for goods rose by 3.6% y/y while prices for services increased by 8.4% y/y.

Due to its large weighting in the basket, housing and utilities is the largest contributor to annual inflation. Annual inflation for this category increased by 8.9% y/y and 0.6% m/m. Annual inflation for rental payments remained unchanged at 9.6% in September and will likely remain this high for the rest of the year. The electricity and other fuels subcategory recorded to largest monthly move in prices in September. On an annual basis, prices in the electricity and other fuels subcategory rose 6% compared to 1.8% in August. The low annual inflation rate for this subcategory stemmed from a decrease in prices of gas products, paraffin, methylated spirits, charcoal and wood. Early in the month of September, a 30 cents per litre increase in the price of petrol and diesel was put in effect that contributed significantly towards the uptick in inflation for this subcategory.

The second largest contributor to annual inflation is food and non-alcoholic beverages. This basket item has been one of the major factors contributing to moderating inflation this year. Following the alleviation of the drought, food inflation continues to moderate towards the end of 2017. Prices in this category rose by 4.2% y/y, down from the 4.6% recorded in August. Fish prices are rising faster than any other within this category, rising by 18.2% y/y and 7.6% m/m in September, while prices for bread and cereals contracted by 2.4% y/y, and meat prices increased by 9.4% y/y. Fruit prices fell by 5% m/m.

Alcoholic beverages and tobacco, the third largest category, saw prices increase 5.3% y/y compared to an increase of 5.2% in September of 2016. Prices of alcoholic beverages rose 5.1% y/y while tobacco prices accelerated by 6.0% y/y. Transport prices rose by 3.9% y/y and 0.7% m/m, in line with the decline in vehicle sales for September. Prices related to the purchases of vehicles rose by 3.9% y/y compared to 4.2% recorded in August.

South African inflation was 4.8% in August, up from 4.6% in July. Lower inflation allowed the SARB to cut interest rates in July, and although the August inflation figure was still well within the SARB’s target band, the MPC opted to leave rates unchanged at the September MPC meeting citing long term risks to the inflation outlook. Bank of Namibia aims to ensure price stability through its monetary policy, which is largely achieved by maintaining the currency peg. This ensures that Namibia imports price stability from South Africa. As such, we expect Bank of Namibia to follow suit and leave rates unchanged at 6.75% at its upcoming MPC meeting scheduled for 25 October. However, persistently weak economic growth and moderating inflation does set the stage for further loosening of monetary policy and we are likely to see rates being cut by 25 basis points before the end of the year, should the SARB lead the way.

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