Global oil prices cause for concern as inflation rises

ALTHOUGH global economic prospects remained positive during the third quarter of the year and spilling over into this month, risks such as high international oil prices, rising inflation and interest rates are challenges that cannot be ignored.

This is the view of the Chief Investment Officer at Old Mutual Asset Managers SA, Peter Linley, who gave an economic and market update at a breakfast meeting in Windhoek yesterday. Linley said the high oil prices, which yesterday stood at just above US$60 (N$396) per barrel, and rising interest rates could in turn negatively impact global economic growth.”Therefore central banks need to balance the risk of inflation with economic growth when setting monetary policy.Higher interest rates ultimately hold some risk of eventually softening commodity prices.”Last week, South African Reserve Bank Governor Tito Mboweni gave hints of an interest rate hike before year-end – which would see a similar effect on the local repo rate which, like South Africa’s, currently stands at seven per cent.Linley said the South African economy continued to perform well and had the potential to grow stronger as a result of consumer spending and foreign investment, among other issues.He said the rand was also showing stability.The South African government has reiterated its positive economic growth target, boosting positive growth sentiment and supporting local fixed investment growth, said Linley.The prevailing favourable global conditions, said Linley, were beneficial to emerging markets.On the inflation side, the National Planning Commission’s Central Bureau of Statistics in its latest report this week said the annual inflation rate for September surged to 2,9 per cent compared to 2,2 per cent recorded in August.The annual inflation rate has been on an upward trend, as it stood at 1,7 per cent in July and 1,3 per cent in June.The monthly inflation rate, however, was lower – estimated at 0,6 per cent compared to 0,7 per cent in August.The slight decrease was attributed to lower monthly increases in the price indexes of clothing, footwear, hotels and restaurants.The annual inflation rate for the major groups comprising the Namibia Consumer Price Index (NPCI) were food and non-alcoholic beverages at 2,9 per cent; housing, water, electricity and other fuels 2,4 per cent and transport at 8,6 per cent.Bank of Namibia Governor Tom Alweendo earlier this month noted that although inflation was relatively low, it was on the rise and the central bank remained concerned about high oil prices, which could have “second-round effects” on the already rising inflation.Linley said the high oil prices, which yesterday stood at just above US$60 (N$396) per barrel, and rising interest rates could in turn negatively impact global economic growth.”Therefore central banks need to balance the risk of inflation with economic growth when setting monetary policy.Higher interest rates ultimately hold some risk of eventually softening commodity prices.”Last week, South African Reserve Bank Governor Tito Mboweni gave hints of an interest rate hike before year-end – which would see a similar effect on the local repo rate which, like South Africa’s, currently stands at seven per cent.Linley said the South African economy continued to perform well and had the potential to grow stronger as a result of consumer spending and foreign investment, among other issues.He said the rand was also showing stability.The South African government has reiterated its positive economic growth target, boosting positive growth sentiment and supporting local fixed investment growth, said Linley. The prevailing favourable global conditions, said Linley, were beneficial to emerging markets.On the inflation side, the National Planning Commission’s Central Bureau of Statistics in its latest report this week said the annual inflation rate for September surged to 2,9 per cent compared to 2,2 per cent recorded in August.The annual inflation rate has been on an upward trend, as it stood at 1,7 per cent in July and 1,3 per cent in June.The monthly inflation rate, however, was lower – estimated at 0,6 per cent compared to 0,7 per cent in August.The slight decrease was attributed to lower monthly increases in the price indexes of clothing, footwear, hotels and restaurants.The annual inflation rate for the major groups comprising the Namibia Consumer Price Index (NPCI) were food and non-alcoholic beverages at 2,9 per cent; housing, water, electricity and other fuels 2,4 per cent and transport at 8,6 per cent.Bank of Namibia Governor Tom Alweendo earlier this month noted that although inflation was relatively low, it was on the rise and the central bank remained concerned about high oil prices, which could have “second-round effects” on the already rising inflation.