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Economists Foresee Modest Consumption Spending In Future

By:Justicia Shipena

Future consumption spending is expected to be modest, according to economists at Simonis Storm Securities (SSS).

Real consumption spending fell by 4.4% year over year in the first quarter of 2023, according to the financial research firm’s report on inflation released in June 2023.

The fall was brought on by rising interest rates, a reduction in the amount of consumer credit given out, and high living expenses.

Since the fourth quarter of 2021, consumption spending has not decreased prior to this, Simonis Storm said.

“We expect consumption spending to remain weak going forward, which should also aid disinflation tendencies in certain NCPI categories,” the firm said.

The first half of 2023 was marked by low inflation, with the annual rate of inflation reaching its lowest level since March 2022 in June 2023.

In June 2023, the annual inflation rate was 5.3% compared to the previous year.
According to SSS, supply-driven inflation is slowing as anticipated, and the high base from last year has helped to bring down annual inflation rates.

“Thus far, inflation averages 6.5% YTD, compared to our forecast of 5.9% for 2023.”
According to the SSS report, food continues to be the main cause of inflation, contributing for 2.2 percentage points of the yearly inflation rate, while all other categories of the Namibian Consumer Price Index (NCPI) contributed less than 1 percentage point to overall inflation.

“Showing signs of easing inflationary pressures in key categories such as alcohol and tobacco contributing 0.8 percentage points, transport (-0.01 percentage points), utilities (0.7 percentage points) and furniture (0.4 percentage points),”SSS stated.

However, the firm’s analysis found that 17% of the 65 different goods in the NCPI, as opposed to 11% of all products in June 2022, had double-digit inflation rates in June 2023.

In addition, the report revealed that in June 2023, transport had its first annual decline since February 2021, falling by 0.1%.

According to the firm, the operation of personal transportation decreased by 2.5% year over year, which was caused by lower diesel and petrol prices.

Since March 2023, Namibia’s fuel prices have remained constant, but diesel prices have fallen from N$20.65 per litre to N$19.05 per litre.

With prices returning to levels seen in 2021, it is accompanied by a considerable easing trend in global food costs.

Food and non-alcoholic drinks saw their lowest inflation rate since December 2022 in June 2023, in line with general trends.

The price of wheat has decreased globally, which has led Namib Mills to reduce their pricing to reflect the normalisation of raw material prices worldwide.

“Therefore, while the current outlook indicates a positive trend of decreasing food prices, the shift towards El Nino could pose a risk by potentially reversing this downward trajectory and contributing to inflationary pressures in 2024,”SSS said.

According to the survey, Namibia had the lowest average inflation rate among its SADC counterparts during January to May 2023, although it was still higher than that of other emerging countries.

The research firm noted that load shedding has become less common, resulting in fewer unplanned power outages, and that Namibia could profit from a temporary improvement in South Africa’s electrical situation.

Given Namibia’s heavy reliance on imports from the nation, it was stated that this favourable move is anticipated to prevent immediate price hikes in food and other consumer goods.

“The pass-through from currency weakness remains a risk to inflation.”

Additionally, the Rand currency rate has lost 15.8% of its value annually, falling below R19 to close at R18.84 per US dollar at the end of June 2023.

The Rand will therefore continue to be dependent on US statistics and Federal Reserve choices about monetary policy, according to SSS’s experts.

“Indeed, US job market results at the start of July showed that wage growth remains strong and led to a stronger US dollar,” stated the report.

In light of this, Simonis Storm expects the Federal Reserve to raise interest rates by 25 basis points on July 26.

According to the report, this action is likely to have a knock-on impact and lead to rate increases in other nations like South Africa.

“Consequently, Namibia may find it necessary to increase its rates in order to maintain a favourable interest rate differential.”

It is crucial to take into account the probability of a further 25 bps rate hike by the Bank of Namibia (BoN) in this situation.

This projected rise in Simonis Storm would be consistent with the general trend of tightening monetary policy in response to the Federal Reserve’s initiatives.

In spite of the possibility of lower inflation, SSS came to the conclusion that these rate hikes will likely have an effect on consumer spending in the future.

Justicia Shipena

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