Reduced fuel prices slow down December inflation

 

The reduction of fuel prices by a dollar for petrol and N$0.40 for diesel contributed to the slowing down in the prices of basic commodities for December.

Inflation slowed down to 5.1%.

 The inflation rate for both goods and services declined.

 

After continuous increases in the inflation rate for goods since March 2018 from 2.8% to 6.1% in November, prices rose at a slower pace in December – 4.2%.

 

The inflation rate for services started to rise in May 2018 from 4.2% to 4.8% in October and November 2018, before it decreased slightly to 4.5% in December.

 

The inflation rate for services exceeded the inflation rate for goods for the first since June 2018.

 

Food price inflation continued its upward trend that started in October 2018 and increased to 5.4% in December from 4.9% in November.

 

The main driver has been bread and cereal prices that rose by 7.9% in December compared to 6.0% in November.

 

This category contributes 32.8% to the overall food inflation rate and has, therefore, a strong impact on food price inflation.

 

In contrast, meat prices increased at a slower pace of 3.5% compared to 4.7% in November. Meat accounts for 23.9% of the food basket.

 

After price declines between May and September 2018, prices for sugar, jam, honey, etc. are on the rise again and increased by 4.7% in December (November: 4.3%).

 

The inflation rate for vegetables etc. saw the strongest increase from 8.9% in November to 12.8% in December 2018, while fruit prices accelerated slightly stronger in December (8.1%) than in November (7.9%).

 

Milk price increases decelerated from 2.2% in November to 0.4% in December.

 

Experts said the reduction in fuel prices resulted in the drop of the inflation rate for the operation

of transport equipment, which has the highest weight within the transport category and contributes 8.96% to the overall inflation rate.

 

Prices for the operation of transport equipment rose by 10.5% in December compared to 15.4% in November and was the slowest pace since June 2018.

 

Transport contributes 14.3% to total consumption

 

However, according to the Economic Association of Namibia despite a further drop in fuel prices in January 2019 by N$0.90 per litre and N$1.00 per litre for petrol and diesel respectively, fuel prices remained higher than in January 2018, and will, therefore, contribute to the inflation rate.

 

Economist Klaus Schade said one can expect oil price fluctuations influenced by changing global growth prospects and in particular by progress in trade negotiations between China and the USA, in Brexit negotiations as well as the monetary policy path pursued by the Federal Reserve Bank in the USA and the European Central Bank, among others.

 

“In addition, output targets agreed by OPEC+ (mainly Saudi Arabia and Russia), adherence to targets, as well as output responses by US and Canadian shale oil producers will further influence global oil prices, while the exchange rate will impact on domestic fuel prices. Higher fuel costs over the past months, despite some respite in December and January, could, however, result in so-called second round effects, because producers could pass on higher input costs to the end consumer,” he said.

 

Meanwhile, prices for health services increased at the same rate as in November 2018 (4.8%).

 

The inflation rates for both sub-categories medical products, outpatient services remained unchanged at 3.4% and 6.6% respectively.

 

After prices for clothing and footwear increased again in October they followed the same trend since December 2017 again, falling.

 

Prices for this category dropped by 0.2% in December 2018, for girls’ clothing dropped by 12.5%, while prices for boys’ clothing increased by 0.8%.

 

Prices for infants’ clothing decreased by 3.6%.

 

White maize prices and wheat prices on the South African Futures Exchange (Safex) are currently 49% and 21% higher than in January 2018.

 

“This could result in further price pressure on bread and cereals, while the expected El Niño effect with below average to average rainfalls this season in the region could result in further price increases for crops, vegetable and fruits, while meat prices could decline further due to higher livestock marketing.”

 

“Overall, we expect the inflation rate in 2019 to remain within the 3% to 6% band targeted by the South African Reserve Bank through its monetary policy,” said Schade.