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Inflation has decelerated but are consumers feeling it?

Fri, 21 July 2017 17:11
by KELVIN CHIRINGA
News Flash

Namibia Equity Brokers analyst Ngoni Bopoto says although there is clear indication of a coming down of prices of basic foodstuffs, consumers are still miles away from feeling it while the economy remains firmly rooted in a crippling negative growth (2.7%).  

“We have a few problems here, if I tell you that prices are coming down, you will tell me I am crazy because you are not feeling it in your pocket, son I think basically that is what we are seeing,” says Bopoto The cost of basic food staffs has come down, Bopoto says, due to the rainfall that Namibia has had as well as in South Africa. The cost of transport came down considerably from 7.1% to 5% made possible by the drop in price increases for the operation of personal transport equipment, which refers mainly to fuel.

 Bopoto affirms that this noted reduction is poised to siginificantly have a positive impact in the consumer’s purchasing power. “According to the basket that the CPI is based on, yes that is definitely happening. Housing and utilities make up about 28%, the biggest category, yet for some people depending on their basket, housing and utilities could even be a small category compared to what they spend,” he says. With the annual uptick in food inflation having been countered by receding transport inflation, Bopoto says, “We expect this slowdown to continue next month following the MME’s decision to cut fuel prices effective 5 July 2017. Goods (+4.9% y/y & +0.2% m/m) led the downside while services were unchanged on a monthly basis and at +8.2% y/y.”

According to the Consumer Price Index, inflation in the category of Alcoholic Beverages and Tobacco has also improved substantially from 7.1% in June 2016 to 3.1% in June 2017. “Note that these are one of the categories with the highest weight in the consumer basket, hence the continued deceleration in overall inflation,” observes Simonis Storm Securities analyst Frans Uusiku. Meanwhile, Uusiku maintains that South African inflation is continuing to fall within the preferred band of 3 – 6%.

 “We expect the South African Reserve Bank (SARB) to cut its repo rate by 50 basis points over the next 12 months. We believe that this would have a knock on effect on Namibia’s monetary policy. We thus expect the Bank of Namibia (BoN) to follow suit by reducing its repo rate by 25 basis points in early 2018,” says Frans Uusiku.

With inflation having registered a deceleration to 6.1 percent from 6.7 percent, on annual basis, recorded in June of the previous year, FNB’s Daniel Kavishe is adamant it is still too high.  Meanwhile 2017 opened with an annual inflation rate of 8,2%, which translated to 2,9 percentage points higher than the 5,3% registered in January a year earlier.