Inflation expected to continue rising as individuals and government spend less

Latest indications from the Namibia Statistics Agency are that the inflation rate increased slightly from 3.5% in the previous two months to 3.6% in April and is expected to continue edging up during the course of the year.

It is substantially lower than the inflation rate for April 2017 of 6.7% and lower than the annual inflation rates since December 2015 (3.7%).

On a month-to-month basis, inflation rose by 0.3% in April compared to March while the month-to-month price increases accelerated compared to March, when average price levels were 0.1% higher than in February 2018.

The uptick in inflation is caused by faster price increases for goods (up by 3.1% from 2.8% in March), while price increases for services decelerated from 4.4% in March to 4.3% in April.

The Economic Association of Namibia (EAN) expects inflation to pick up during the remainder of the year.

“2017 started with relatively high inflation rates (January 2017 8.2%), which slowed down continuously throughout the year to 5.2% in December. Hence the lower inflation rates particularly in the second half of 2017 provide a lower price level and hence price increases expected for the next couple of months will result in higher percentage changes.”

“Future prices for maize on the Johannesburg Stock Exchange suggest price increases from currently NAD2,085 per tonne for white maize to NAD2.244 per tonne in December and from NAD2,178 per tonne for yellow maize to NAD2,326 per tonne in December, which is expected to exert upward pressure on food prices,” said Klaus Schade.  

Simonis Storm Securities have revised that average annual inflation forecast for 2018 to 4.1% down from 5.4% expected previously.

“This is on the back of a prolonged low consumer confidence, low GDP growth rate and low spending by both government and individuals. Our view is that inflation will increase at a moderate pace over the next eight months on the back of an increase in fuel levy by 25 cents per litre for all levied fuel products announced during the budget,” said the firm. 

Simonis Storm and the EAN have also noted the uptick in global oil prices and recent weakness in the Rand as causing prices to go up.

 According to EAN, Brent oil spot prices averaged USD72.11 per barrel in April 2018, the highest monthly average since November 2014 (USD79.44 per barrel).

“Prices are expected to at least remain at this level if not increase further mainly due to the continuous supply cuts by OPEC and non-OPEC member states and the withdrawal of the USA from the Joint Comprehensive Plan of Action with Iran and looming re-introduction of sanctions. Increased oil production in the USA owing to more favourable prices are not expected to level out these factors.”

“Higher oil prices will not only have a direct impact on transport inflation, but will ripple through the economy over time, because of increased input costs for companies,” said Schade.