Windhoek
Following this week’s announcement that significant price increases will hit Namibian consumers at the end of January, economic analysts yesterday weighed in on the development by noting that a combination of increased prices, severe drought and a weakening South African Rand will result in higher inflation during 2016.
According to the Namibia Statistics Agency the annual inflation rate for December 2015 dropped from 5 percent in November to 4,6 percent on an annual basis, but some experts predict inflation in 2016 will average between 5 and 5.5 percent, particularly when higher utility prices are added to the equation. “Inflation is going to track higher this year. The weakening currency and severe drought conditions pose significant risk to food prices and the inflation outlook,” said Suta Kavari, investment analyst at Capricorn Asset Managers.
He added that a depreciating Namibia Dollar is a risk to the inflation outlook, and will add inflationary pressures that could lead to higher interest rates, which will in turn weigh heavily on the already highly indebted Namibian consumer, increasing debt servicing costs.
“The combination of potential higher interest rates and drought conditions will also lead to higher food prices. Food prices will increase as the price for staples, like corn and maize, increase due to the devastating effects of the El Nino phenomena.
The price of corn, which is a staple, has increased two-fold since the start of last year, while yellow corn, largely used as a base for animal feed, rose by 63 percent,” Kavari stated. Meanwhile, Standard Bank Namibia’s manager of economic and market research, Mally Likukela, said evidence suggests that a high proportion of consumer expenditure in Namibia is accounted for by the purchase of consumer goods from South Africa.
“Such a situation leads to the expectation that imports from SA play a significant role in determining inflation in Namibia and that there should be similar movements of inflation rates in the two countries.
That said, a further weakening in the Rand will see the cost of imported goods for consumers rise, making it more expensive for consumers to purchase items, such as imported electronics or other durable and semi-durable items sourced from abroad in general and South Africa in particular.
We have already seen this in the announcement by Namib Mills, meaning that Namibia will definitely import these from South Africa at even higher prices, should the Rand continue to fall.” Purvance Heuer, director of research and securities at Simonis Storm Securities noted that the drought experienced in both SA and Namibia is resulting in producers and manufacturers having to import maize and other food products in the international markets.
“Namibians can expect food price inflation to continue to spike during the year, which will put pressure on disposal incomes, going forward. We continue to recommend to clients that they pay down debt as we expect the Bank of Namibia to try to stabilise inflation with interest rate hikes,” Heuer said. In addition, both Kavari and Likukela noted that what is even more worrisome is the fact that local consumers won’t benefit from the dramatic drop in global oil prices that is expected to fall to record low levels as it edges ever closer to US$30 a barrel.
“Simply put, this means that as the rest of the world gets lower petrol prices. We get ones that are higher,” Likukela lamented. “The weakening currency limits the extent by which decreases in global oil prices can be transferred into lower local pump prices, because it’s not the (US) dollar oil price that matters, it is the Rand/Namibia Dollar that matters,” Kavari explained.