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Minimal relief as annual inflation slowed to 5.1% in December

2019-01-16  Edgar Brandt

Minimal relief as annual inflation slowed to 5.1% in December

WINDHOEK - The annual inflation rate for December 2018 stood at 5.1 percent as compared to 5.2 percent registered in December 2017. On a monthly basis it decreased to -0.2 percent from 0.7 percent recorded in November 2018.

According to the Namibia Statistics Agency (NSA) the slowdown in the annual inflation rate resulted from housing, water, electricity, gas and other fuels (from 9.2 percent to 3.1 percent); hotels, cafés and restaurants (from 5.5 percent to 4.3 percent); health (from 5.2 percent to 4.8 percent) and miscellaneous goods and services which dropped (from 4.7 percent to 4.0 percent). 

“The drop in fuel prices by N$1.00 per litre for petrol and N$0.40 per litre for diesel slowed down inflation to 5.1 percent in December. However, despite a further drop in fuel prices in January 2019 by N$0.90 per litre and N$1.00 per litre for petrol and diesel respectively, fuel prices remain higher than in January 2018, and will therefore contribute to the inflation rate,” said Klaus Schade, Research Associate at the Economic Association of Namibia. 

In his commentary on the latest inflation figures, Schade expects oil price fluctuations to be influenced by changing global growth prospects, and in particular by progress in trade negotiations between China and the USA, in Brexit negotiations as well as the monetary policy path pursued by the Federal Reserve Bank in the USA and the European Central Bank, among others. 

“In addition, output targets agreed by OPEC+ (mainly Saudi Arabia and Russia), adherence to targets, as well as output responses by US and Canadian shale oil producers will further influence global oil prices, while the exchange rate will impact on domestic fuel prices. Higher fuel costs over the past months, despite some respite in December and January, could, however, result in so-called second round effects, because producers could pass on higher input costs to the end consumer,” Schade cautioned.

He further noted that white maize prices and wheat prices on the South African Futures Exchange (Safex) are currently 49 percent and 21 percent higher than in January 2018. This, he said, could result in further price pressure on bread and cereals, while the expected El Niño effect with below average to average rainfalls this season in the region could result in further price increases for crops, vegetables and fruits, while meat prices could decline further due to higher livestock marketing. 

“Overall, we expect the inflation rate in 2019 to remain within the 3 percent to 6 percent band targeted by the South African Reserve Bank through its monetary policy,” Schade stated.

Meanwhile, the December 2018 All Items Index increased to 135, up from 128.4 recorded in December 2017. The average annual and average monthly inflation rate for the year 2018 stood at 4.3 and 0.4 percent as compared to 6.2 and 0.4 percent registered a year earlier. Monthly price levels were affected by decreases in the prices of goods and services in the categories of transport (-1.8 percent), alcoholic beverages and tobacco (-0.6 percent), hotels, cafes and restaurants (-0.4 percent), and furnishings, household equipment and routine maintenance of the house (-0.4 percent).

The main drivers of the annual inflation rate during the month of December 2018, were transport (10.9 percent); education (9.9 percent); alcoholic beverages and tobacco (5.9 percent); recreation and culture (5.5 percent); food and non-alcoholic beverages (5.2 percent) and health (4.8). The average annual inflation rate for the period April to December 2018 stood at 4.5 percent while the corresponding rate recorded during the same period of 2017 was estimated at 5.7 percent.

Inflation is calculated based on a basket of goods and services, containing a representative sample of the goods and or services commonly consumed in a country, and weighted in accordance with the relative percentage of expenditure allotted to each of the said goods at household level. The prices of these goods and services are then tracked over time, to illustrate the change in the cost of living over time. As spending patterns change, new products and services are added to the basket, and the basket reweighted so as to better capture the current spending patterns of the consumer at the current point in time.

As such, the inflation basket is generally reconstituted every five years. In Namibia, the basket was last rebased in 2013, using household expenditure data collected in the 2009/10 Household Income and Expenditure Survey.  The basket now contains over 350 items, grouped into 12 categories and 55 sub-categories, for which prices are collected on a monthly basis from more than 900 retail outlets.

Namibian inflation, however, is largely determined by three categories of the overall NCPI basket, namely: (i) housing, water, electricity, gas and other fuels, (ii) food and non-alcoholic beverages and (iii) transport, which cumulatively make up just under 60 percent of the total inflation basket.  Additionally, following the rebasing of the NCPI basket in 2013, “alcoholic beverages and tobacco” make up an additional 12.6 percent of the basket, meaning that the four largest categories represent well over 70 percent of the total basket.  “As such, a large increase in inflation in these categories has a greater impact on the 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,” explained NSA Statistician General and CEO, Alex Shimuafeni. 

2019-01-16  Edgar Brandt

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