Annual Inflation Slows to 5 Percent As October Figures Decrease

The annual inflation rate continued to slow to 5.0 percent in October from the 5.3 percent recorded in the previous month. On a monthly basis, the inflation rate decelerated to 0.1 percent as compared to 0.2 percent in previous months. According to the Namibia Statistics Agency (NSA) these increases resulted from monthly increases recorded in all groups comprising the Namibia Consumer Price Index (NCPI).

Dr John Steytler, the Statistician General of the NSA, explained that the decline in the annual inflation rate resulted from food and non-alcoholic beverages, transport, clothing, footwear, health and communications which dropped to 7.5, 5.3, 3.8, 1.2 and,- 1.1, percent compared to 8.4, 6.6, 4.1, 1.6 and -1.0 percent respectively, recorded a month earlier. The all items index for October 2014 stood at 109.7 as compared to 104.5 recorded in the same period last year.

The October annual Inflation rate stood at 5.0 percent with a decrease of 0.3 percentage points as compared to the previous month.

During the period between October 2013 and October 2014, the inflation fluctuated between 6.1 and 4.4 percent.

“This fluctuation in inflation is largely on account of fluctuation in global commodity prices, more on food, exacerbated by a weakening of the Namibia Dollar against major currencies,” said Dr Steytler.

According to the latest report from the NSA, over the past year inflation has been driven predominantly by two categories of the overall inflation basket, namely, transport and food and non-alcoholic beverages, while only one category

has seen prices fall, namely communications.

The big driver of the annual inflation was mainly the relatively large weighting of these categories in the overall inflation basket, food and non-alcoholic beverages (7.5 percent), alcoholic beverages and tobacco (7.1 percent), transport (5.3 percent).

Additional relatively smaller contributions to inflation were seen from the minor groups (by basket weighting), such as recreation and culture (5.6 percent), hotels, cafes and restaurants (6.3 percent) and miscellaneous goods and services (5.0 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 to 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 200910 Household Income and Expenditure Survey. As such, 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 housing, water, electricity, gas and other fuels, food and non-alcoholic beverages and 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, large increases in inflation in these categories has a greater impact on 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.

The food and non-alcoholic beverages category of inflation is a key driver of inflation in Namibia due to the fact that it tends to be fairly volatile, usually above average inflation, and represents a large weight in the overall basket. The annual inflation for the category stood at 7.5 percent, following a 0.2 percent increase on a monthly basis.

The increase in food prices were recorded in most of the sub-groups except sugar, jam, honey, syrups, chocolate and confectionery which dropped to 2.2 percent, fats and oils 0.9 percent, and milk, cheese and eggs – 0.6 percent.

An additional driver of inflation is the category of transport, which represents 14.28 percent of the overall basket. It recorded 5.3 percent in October 2014, a 2.5 percentage point decrease in prices when compared to 7.8 percent registered in the same period of 2013. This decrease has been largely driven by decreases in the subgroup of operation of personal transport equipment.

A major determinant of Namibian inflation is also the Namibia Dollar to US Dollar exchange rate. When the Namibia Dollar weakened against the US Dollar, inflation tended to increase, and when such weakness is dramatic, such as was seen in late 2008, the inflationary impact can be notable. The reason for this relationship is that Namibia imports a large number of goods which are priced in US Dollars, such as fuel and food.

Source : New Era