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Inflation continues to surprise

The annual inflation rate has caught many analysts by surprise after falling to 6% in May from 6.4% the previous month. Analysts had predicted that inflation will miss the regional target band of between 3 and 6% after it reached a 30-month high of 7.4% in February. But despite the forecasts, inflation has taken a downward trajectory in the past three months.
Figures released by the Namibia Statistics Agency this week show that the annual inflation rate declined by 0.4 percentage points in May driven by decreases in food and housing utilities. Food inflation continued with its downward trajectory from February’s peak of 9.8% to 7.9%. The decline was on the back of decreases in categories such as “food”, “bread and cereals”, “meat” and “milk, cheese and eggs”.
In the housing and utilities category, the annual inflation dropped to 4.3% compared to 4.5% in April while goods inflation also maintained its downward trend to 5.3% year-on-year from last month’s 7.2% and 8.4% in March.
However, services inflation increased steeply to 7.2% from a lower 4.9% in April, and transport inflation increased to 8% compared to April’s 7.5% annual increase. On a monthly basis, transport inflation increased by 1.3% on the back of a 33 cents per litre increase in petrol prices and a 13 cents per litre increase in diesel price.
Local analyst, Rudolf Kuschke from Simonis Storm Securities announced on Thursday that they had revised downwards their inflation forecast for 2012. He said they now expect inflation to trend lower to 5.5% by year end.
“The downward revision is a function of expected declines in transport inflation and a base effect offsetting monthly increases in food and other categories,” he said.  Kuschke forecast annual inflation to average 6.2% this year, still way above the average of 5% in 2011
In March, Economist Dr John Steytler said with increasing global inflationary pressure (in the form of food and fuel inflation) being the main protagonist in the increase of the annual domestic inflation rate, overall inflation will be above the upper limit of the inflation targeting framework for the duration of 2012.
The Governor of the Bank of Namibia, Ipumbu Shiimi concurred with Steytler in April when he said the country was likely to miss the regional inflation target range of 3 to 6% as inflation was set to average around 7% in 2012, peaking at just below 8%.
Another analyst, Klaus Schade shared the same sentiments recently saying Namibians can expect further electricity increases in the middle of the year and continuous strong demand for houses that will result in upward price pressure for the housing category. Schade said the country can expect inflation to move towards an average of 7% for this year.

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