July’s annual inflation rate came in at 6.8% y/y, compared to 6.0% y/y recorded in the prior month, according to a latest Simonis Storm report.
“This is the highest monthly annual inflation rate recorded since April 2017 and is consistent with our view that inflation rates are likely to come in above 6% during 3Q2022,” said the stockbroker’s economist, Theo Klein.
Annual goods inflation has been recorded above 7% in the last four months, with the latest print coming in at 10.0% y/y in July 2022.
Year-To-Date (YTD), goods inflation averages 7.2% which is more in line with our headline inflation forecast of 7.1% for 2022. Services inflation on the other hand has averaged 2.8% YTD, dragging headline inflation rates lower.
Disaggregating July’s data, the biggest contributors were Transport (↑ 20.9% y/y), Hotels and restaurants (↑ 9.8% y/y), Food and non-alcoholic beverages (↑ 8.4% y/y) and Furnishings, household equipment and maintenance (↑ 7.9% y/y).
YTD, annual inflation rates in the housing and utilities category has averaged a meagre 1.4%, compared to 16.5% for transport, 6.2% for food and 4.5% for alcoholic beverages and tobacco.
The housing and utilities category has the largest weight in the consumer price basket and is likely to support higher inflation rates in coming months due to the 7.3% increase in electricity tariffs that were effective from July 2022.
Indeed, the electricity, gas and other fuels sub-category recorded annual inflation of 2.3% in July 2022, compared to 0.6% in June 2022.
Soft commodity futures are in backwardation (when current prices are higher than futures prices) for a number of agricultural products, except wheat and sugar.
Futures prices have decreased by 13.6% on average for a select group of contracts (Figure 5).
Declines in global food prices are led by grains and is expected to apply downward pressure on producer prices in 3Q2022 in South Africa according to Investec.
“This could filter through to Namibia in the form of lower prices as we import a great deal of food from South Africa,” said Klein.
With Namibia being a net food importer, local food prices will likely be impacted by the above global food price developments.
“With a weaker Rand exchange rate expected for 3Q2022, we expect local food prices to remain elevated and potentially only show signs of easing in the 4Q2022 going into 2023. However, local food prices might still be more expensive than what consumers were used to in recent years.”
“Locally, Namibian companies in different sectors which we surveyed indicated that shipping costs from Asia and Europe have decreased considerably, but remain above pre-pandemic levels. Bloomberg consensus forecasts indicate that supply chain pressures are likely to ease to levels seen in the second half of 2020 by the end of 2022,” said Klein.
This implies that global supply chain inflationary pressures might only fully subside during 2023 in Namibia.