Headline inflation ticks lower to 2%
The average inflation rate is expected to remain subdued in 2020 due to lower oil and grain prices as well as dismal domestic demand, while pass through from the weaker exchange rate is expected to be limited.
According to the latest consumer price index released by the Namibian Statistics Agency, headline inflation ticked marginally lower to 2% in July from 2.2% in June. Looking at the major sub indices, food non alcoholic beverages and alcoholic beverages tobacco were the biggest positive contributors to the headline inflation rate, while housing utilities and transport were the biggest negative contributors.
Furthermore, the smaller miscellaneous goods services and education sub indices also each contributed. Some food price pressures increased on an annual basis, mainly stemming from higher prices of meat, fruit and vegetables.
Meanwhile, rental prices and maintenance repair costs kept the housing utilities sub index in deflationary territory Moreover, transport price inflation also stalled in deflationary territory, in line with a nearly 21% decline in fuel prices in July. Fuel prices were raised by between N$0.7 and N$1 per litre in August, but remain lower than what they were a year ago.
Shelly Louw, Research Analyst at PSG Namibia noted that transport price inflation has decelerated sharply after the benchmark oil price hit a peak of $86 per barrel in October 2018.
“This trend is set to continue, as we forecast the oil price to average $41.2 per barrel this year, down from an average of $64.4 per barrel in 2019. Despite acute currency weakness over the past year, pass through has been limited, with retailers unable to pass on higher costs in the recession hit trading environment,” Louw said.
She added that the outlook for both South African maize and global wheat production in 2020 is positive, which means Namibia’s bread cereal price inflation should remain under control, adding that housing utilities price inflation has been subdued, as house and rental prices have fallen following several years of soaring growth.
“The corona virus crisis will likely increase unemployment, which will put further strain on the housing market. In fact, according to a July FNB press release, rental activity did witness a decline of 49% quarter on quarter in the second quarter of 2020 due to the direct material impact of Covid-19 related job losses on the rental market,” Louw explained.
