Headline inflation falls to 14-year low
Headline inflation ticked lower to 2.1% in January, falling to a fresh 14 year low, according to the latest consumer price index report released by the Namibia Statistics Agency.
Headline inflation surprised slightly to the downside in January due to a deflation in the housing,
water, electricity, gas and other fuels (-1.2% from 2.9%) coupled with a drop in educational inflation to 5.7% from 12% in the prior year. According to the Junior Analyst at Simonis Storm Securities, Indileni Nanghonga, better rainfall in the beginning of 2020 should support low prices in agricultural products, especially fruit and vegetables as well as cereals, which have increased in excess of 10% in 2019.
“For most countries, low inflation and stagnating economic growth would induce interest rate cuts. Namibia on the other hand, still has interest rates hovering at 6.50% as fiscal and credit risks creep in. Bank of Namibia is sitting on the 18 February and we expect an interest rate cut of 25bps as inflation risk subsides,” Nanghonga said.
Inflation in the water and electricity space stood at 3.8% and -1%, respectively in January 2020 and with the better rainfall this year there has been an uptick in the overall dam levels, currently at
20.9% of full capacity (lowest at 10% of full capacity in 2018). Subsequently, there are expectations in power generation specifically from the Ruacana Power Station.
PSG Namibia forecast is for inflation to tick somewhat higher from 3.8% in 2019 to 4% in 2020 due to expected upward pressure on food, fuel, and other administered prices.
“However, falling energy prices over the past month (the benchmark Brent crude oil price fell 12% in January) due to global demand concerns and heightened by the novel coronavirus outbreak, are a significant downside risk to our forecast,” Shelly Louw, Research Analyst at PSG said.