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Rising Oil Prices: A Looming Threat to Namibia’s Inflation

By:Justicia Shipena
The rise in oil prices may result in higher transportation costs, which might contribute to growing inflation in Namibia.
This is according to economists at Simonis Storm Securities.
Inflation rates demonstrated a persistent rate below the 5% threshold for the second consecutive month.
This was a little improvement above the previous month’s rate of 4.5% year over year in July 2023.
“Higher gasoline prices may lead to increased transportation costs, which could contribute to rising inflation in Namibia,” stated the economists.
Fuel prices in the United States are presently at their highest seasonal level in more than a decade, exceeding last year’s costs, with the national average for standard petrol standing at $3.81 per gallon.
The increase has been attributed to Saudi Arabia and Russia extending its oil supply limitations for another three months, therefore continuing production cutbacks that have held output at about nine million barrels per day for the past six months.
Given that travel expenditures account for 18.25% of the consumer basket, Simonis Storm believes this will affect Namibian inflation by the end of the year.
The mines and energy ministry raised fuel prices last week in response to the weaker exchange rate and OPEC oil cuts.
This rise resulted in a 6.1% month-on-month increase in petrol prices and an 8.9% month-on-month increase in diesel prices (50ppm) in September.
According to Simonis Storm, while inflation rates remain relatively low, the cost of living is gradually rising, putting further strain on people. Year to far, the average annual inflation rate is 6.0%, slightly higher than our forecast average inflation rate of 5.9% by the end of 2023.
Meanwhile, the transport sector saw disinflation for the third month in a row in August 2023.
“This disinflationary trend is primarily a result of annual reduction in local fuel prices during August,” stated the August report on inflation by Simonis Storm.
According to the financial research organisation, despite the recent increase in fuel costs, they are still lower than a year ago.
As a result, this price increase results in a 0.5% year-on-year decline in petrol prices and a 6.2% year-on-year fall in diesel prices in September 2023.
“As a result, while higher transport costs may not have a detrimental impact on annual transport inflation, they do possess the potential to elevate the costs of goods, given their significant influence on input costs,” said Simonis Storm’s research assistant Angelique Bock.
According to the report, companies such as transportation, mining, agriculture, fishing, retail, wholesale, tourism, tour operators, and manufacturing are expected to face increased cost pressures as a result of rising gasoline costs.
Based on the report, the rising cost trend may lead to a tendency among these industries to raise consumer prices in order to maintain their gross profit margins.
During the previous Monetary Policy Committee (MPC) meeting, one member urged for a 25bps hike in the repo rate, expressing worries about the unpredictable path of inflation, according to Simonis Storm.
Thus, it is believed that anticipated rises in gasoline costs, which have considerable economic consequences across numerous industries, would result in a higher cost of living for Namibian consumers.
This scenario, according to Simonis Storm, may persuade further MPC members to approve a 25bps repo rate rise at the subsequent meeting on October 25th, 2023.
“We will be able to provide a more specific outlook after the Federal Open Market Committee (FOMC) meets on September 20th and the South African Reserve Bank (SARB) meets on September 21st, 2023,” the economists added.
Furthermore, there is an evident pattern of constant to lowering inflation rates across established and emerging economies, indicating a worldwide cooling of inflationary forces.
According to the paper, this phenomena can be traced to many nations’ adoption of higher policy rates as an attempt to counteract inflationary tendencies.
In this regard, the business notes that there is continuous discussion indicating that these higher policy rates are likely to be maintained in order to provide a more predictable inflation environment.

Justicia Shipena

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