Annual inflation continues to slow down

Windhoek-The Namibia Statistics Agency (NSA) yesterday released the latest Consumer Price Index which indicates that the annual inflation rate for September 2017 increased for the first time this year.

The annual inflation rate slowed to 5.6 percent in September 2017 from the 6.9 percent registered in September of the previous year, resulting in a slowdown of 1.3 percentage points.

The slowdown in the annual inflation rate resulted from Food and Nonalcoholic Beverages (12.0 to 4.2 percent), Health (7.2 to 5.9 percent), Furnishings, Household Equipment and Routine maintenance of the house (6.1 to 3.6 percent), Recreation and culture (5.7 to 3.1 percent), Hotels, Cafes and Restaurants (9.5 to 6.2 percent), Miscellaneous Goods and Services (5.7 to 4.1 percent) and Clothing and Footwear declined from 1.1 to -1.7 percent.

The annual inflation rate (September 2017 compared to September 2016) increased slightly from 5.4 percent in August 2017 to 5.6 percent in September 2017 after declining continuously since January 2017. However, it remained below the inflation rate in September 2016 of 6.9 percent.

The monthly inflation rate (September 2017 compared to August 2017) rose from 0.1 percent in August to 0.4 percent in September 2017.

Klaus Schade of the Economic Association of Namibia (EAN) noted that price increases for services are this year the main inflation driver. Schade noted that prices for services increased by 8.4 percent compared to September 2016 and that service prices rose faster than prices for goods since January 2017.

Services account for 42.3 percent of the consumption basket. Consequently, price increases of services contributed 3.6 percentage points to the total inflation rate of 5.6 percent. Prices for housing, water, electricity, etc. recorded the highest inflation rate of 8.9 percent year-on-year.

Since this category accounts for the largest weight in the consumption basket (28.4 percent) it has a strong influence on the overall inflation rate. Compared to August when it stood at 8.3 percent, inflation accelerated for this category in September, Schade explained.

He also noted that Rental payments recorded price increases of 9.6 percent, as in previous months. Costs for repairs and maintenance increased by 5.9 percent, down from 6.3 percent in August 2017.

The contraction in the construction sector could have a dampening effect on prices for repairs and maintenance. Costs for water supply rose also at a slower pace: 8.1 percent in September compared to 8.4 percent in August. Electricity prices on the other hand showed a much stronger increase in September (6.0 percent) than in August (1.8 percent), said Schade.

After an uptick in food prices in August (4.6 percent) compared to July 2017 (4.3 percent), price increases slowed down to 4.2 percent in September. Food and non-alcoholic beverages account for the second highest weight in the consumption basket (16.5 percent).

Also, prices for bread and cereals as well as for fruits actually decreased compared to September 2016 by 2.4 percent and 1.7 percent respectively. Prices for milk, cheese and eggs rose by 2.9 percent, which is below price increases in August (5.3 percent).

Meat prices on the other hand continue their upward trend and rose by 9.4 percent compared to 8.9 percent in August 2017. The strong increase in the value of exports of live animals in the second quarter 2017 could be a driving force for higher meat prices.

The price for vegetables is on the rise again (2.1 percent) after five consecutive months of decline.

Meanwhile, transport prices showed a stronger increase in September 2017 (3.9 percent) compared to August (2.0 percent) fuelled by higher fuel prices. Costs for the operation of transport equipment rose by 5.0 percent compared to 1.9 percent in August 2017. Transport carries the third largest weight in the consumption basket with 14.3 percent.

Costs of alcoholic beverages and tobacco rose at the fastest pace since February 2017, namely at 5.3 percent in September compared to 4.8 percent in August. These items account for 12.6 percent of total expenditure of an average Namibian household.

Despite a slight acceleration of price increases, we expect the annual inflation rate to remain below last year's inflation rate of 6.7 percent. Relatively modest price increases for food products remain good news for in particular low-income earners and the poor who spend a much larger share of their income on food than the average Namibian household (16.5 percent).

The decision to leave fuel prices unchanged in October will reduce price pressure on transportation costs with subsequent positive impacts on the inflation rate in October, Schade concluded.

Source: New Era Newspaper Namibia