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Capricorn sees bottom of inflation cycle, expects upturn to start incrementally in December

Capricorn sees bottom of inflation cycle, expects upturn to start incrementally in December

Capricorn Asset Management’s Chief Economist, Floris Bergh said their short and medium term inflation forecasts are largely unchanged, following the release this week of the monthly and annual inflation figures by the Namibia Statistics Agency.

Annual inflation for November stood at 2.5%, down by 50 percentage points from October’s 3% reading. Capricorn’s forecast of 2.6% is only 10 percentage points away from the actual reading. Given the slightly weaker inflation outcome, Capricorn has now shaved their year-end number from 2.9% to 2.8% but still believes that it will be the first step in a gradual increase.

“The 2.5% for November should constitute the bottom. So inflation is likely to tick up from here,” Bergh said in a short assessment on Thursday.

Factors he sees as potentially leading to a faster than expected increase in inflation are the prices of maize, meat and residential property. Other upside risk factors are the rate at which local authorities increase their rates and taxes, the increase in so-called sin tax, a currency blow-out and another oil price shock.

Still, Bergh cautioned that any unexpected increases would have to be quite “nasty” to exceed what they see as the ‘High Seasonal Pattern.’ In this scenario, headline inflation will still only reach 5.4% by June next year.

The historically low inflation should allow the Bank of Namibia to reduce interest rates, an outcome which Bergh deems possible by February next year.

“Our view is still that the Bank of Namibia should be able to lower interest rates in the current economic malaise, i.e. that inflation considerations ought not to be of major concern. In fact, we expect the next cut in interest rates in February 2020,” he said.


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