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Fuel reductions to push down prices

Wed, 23 September 2015 22:37
by Charmaine Ngatjiheue

Recent reductions on fuel could significantly reduce inflation in the future renowned economist and analyst James Cumming has said. His sentiments follow revelations that Inflation went up to 3.4% in August from the 3.3% recorded in July.

Cumming a Director of Research at Simonis Storms Securities (SSS) said the increased inflation will put pressure on domestic prices. “Potential water shortages caused by the poor and erratic rainfall over the last 3 years continues to be a worry. We will only know towards the end of Q1 2016, if water rationing will become a reality. If it does then the price of water is likely to rise,” Cumming said.

He added that the country is set to pay more for imported products as imported inflation is the leading contributor to increased overall inflation. Cumming stressed that since South Africa is Namibia’s dominant trading partner, the increase in SA inflation can slipover to Namibia in terms of import inflation.

He added that the Rand volatility remains a concern for the medium term, adding that however, the lower petrol and diesel prices announced at the beginning of September 2015 (95 Octane unleaded petrol decreased by 30 cents per litre and diesel decrease by 40 cents per litre) might bring a little relief in transport inflation but does not guarantee a slowdown in overall inflation.

Annual inflation rate for the Transport component stood at -1.4%, a 0.4% points increment from -1.8% recorded a month ago, this increase was derived from the increments observed in the sub-categories of Purchasing of vehicles which rose to 7.1% from 7% and Operation of personal transport equipment which increased to -4.6% from -5.2% recorded the previous month.

The Namibia Statistics Agency (NSA) in their NCPI further stated that between August 2014 and August 2015, the annual inflation rate fluctuated between 5.4% and 2.9%t with the highest annual inflation rate of 5.4% being observed in August 2014 and the lowest of 2.9% was registered in April 2015.

The NCPI added that for the month of August 2015, the increase in the annual inflation rate was driven by Transport which increased from -1.8% to -1.4%, Alcoholic beverages and tobacco increased from 6.9% to 7.2%, Housing, water, electricity gas and other fuels increased from 2.1% to 2.4% and Food and non-alcoholic beverages annual inflation rate increased from 5.35 to 5.5% However, housing, water, electricity, gas and other fuels, food and non-alcoholic beverages and transport, collectively make up just under 60% of the total inflation basket.

“Alcoholic beverages and tobacco make up an additional 12.6% of the basket, meaning that the four largest categories represent well over 70% of the total basket. As such, a large increase in inflation in these categories has a greater impact on overall inflation than do increases in the lower weighted categories. Thus, it is rare to see major increases in overall inflation attributed to the lower weighted categories, despite the fact that these categories may have seen relatively high inflation in their own right,” noted the NCPI in part.

It is worth noting that the annual inflation rate for Food and non-alcoholic beverages category stood at 5.5%, a 0.2% point increase from 5.3% recorded in July 2015.

The NCPI noted that this increase stemmed from the sub-categories of Meat which stood at 7.5%, Food products which stood at 6.3%, Oils and fats and vegetables including potatoes and other tubers, each recorded 5.8%. The report added that the monthly inflation rate for this category stood at 0.5% as compared to 0.2% recorded in the previous month.

“The group of Housing, water, electricity, gas and other fuels the annual inflation was estimated at 2.4% from 2.1%, recorded in the previous month. The subcategory of Water supply, sewerage service and Refuse collection increased to 9.7% from 5.4% due to increases in tariffs by the local authorities. An Increase of 6.4% was observed in August 2015 in the sub-category of Regular maintenance and repair of dwellings as compared to 6.1% obtained a month ago,” the report noted in part.

The annual inflation rate of Alcoholic beverages and tobacco, which represents 12.59% of the overall NCPI basket increased by 7.2% representing a 0.6% points increase in price levels when compared to 6.6% registered during the same period of 2014.

The NCPI noted that this increase has been largely driven by increases in the sub-group of Tobacco because of cigarettes prices which have been showing an upward trend over the past months.

“Between June 2014 and February 2015 generally prices of petrol and diesel recorded a decreasing trend, however the downward trend was reversed in April 2015 when an increase in this sub-component was recorded. The August 2015 monthly and annual inflation rates for Goods were 0.3% and 3.7% while those for Services stood at 0.3% and 2.9% respectively. Corresponding rates recorded during the same period in the previous year stood at 0.4% and 6.5% and 0.1% and 4% respectively,” the NCPI said in part.