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Nam records highest inflation rate: Economist

Staff Writer

June’s annual inflation rate came in at 6.0% y/y, compared to 5.4% y/y recorded in the prior month, a Simonis Storm report shows.

The firm observes that this is the highest monthly annual inflation rate recorded since June 2017 and is evident that rising input costs are filtering through to higher consumer prices.

“Indeed, annual goods inflation has been recorded above 7% in the last three months, with the latest print coming in at 8.7. YTD, goods inflation averages 6.7% (a lot closer to our 7.1% inflation forecast for 2022). Low services inflation rates could be one factor keeping overall inflation rates lower in Namibia compared to other countries,” said Simonis Storm economist, Theo Klein.

With merchandise goods being more obligatory budget expenses (e.g. food, fuel, etc.) compared to services which are more discretionary budget expenses (e.g. travel, tourism, entertainment, etc.), the 6.7% average goods inflation is likely closer to reality on the ground for what the average Namibian is experiencing.

The US dollar is at a 20-year high, and this will make it more expensive to buy commodities and raw materials that are priced globally in US dollars.

Although commodity prices are expected to moderate for the rest of 2022, the stronger US dollar – weaker Rand as a result – will likely keep merchandise goods inflation elevated going forward.

“We therefore expect goods inflation to persist above 7% in coming months, lifting overall inflation rates likely above 6% at the same time,” said Klein.

Disaggregating June’s data, the Transport (↑ 18.6% y/y), Hotels and restaurants (↑ 8.6% y/y), Furnishings, household equipment and maintenance (↑ 7.1% y/y) and Food (↑ 7.0% y/y) categories recorded the largest annual increase in prices.

“We noticed that electricity charges inflation remained unchanged at 1.4%. New electricity tariffs announced in April 2022 are effective from July 2022 onwards and would still need to filter through to higher utility inflation rates,” said Klein.

This is expected to provide further upward momentum to overall inflation rates given that housing and utilities have the largest weight in our consumer price basket used to calculate inflation.

Food inflation in June (at 7.0% y/y) is the highest since June 2021 (at 7.3% y/y).”

“What is crucial to remember is that planting of seeds for crop production in Ukraine would likely have been disrupted in 2022 due to the war, so that crop harvests in 2023 might come in lower than harvests of 2022.”

“We have seen the importance of Ukraine as a global food exporter and this will likely lead to even higher food prices in 2023 as a result of poorer harvests. Ukrainian harvests in 2023 might also decline as Ukrainians leave jobs to fight in the war or flee out of the country, leading to farm labour shortages.”

“Also, infrastructural damage from the war could worsen in coming months, making food exports out of Ukraine more challenging and costly in 2023. In other parts of the world, a swine flu in Germany and droughts with high temperatures in Romania (a key corn exporter) and the US are hampering food production. There is a risk of these developments spilling over into Namibia’s cost of living crisis,” Klein said.

Staff Writer

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