Inflation eases, but interest rate expected to edge up

Gerrit van Rooyen

THE rise in the price of goods and services last month eased to 6,1%, but analysts say this is not expected to lead to the Bank of Namibia cutting interest rates just yet.

Under normal circumstances, when inflation drops, interest rates are consequently downed, but due to the Namibia dollar and South African rand peg, it doesn’t always happen.

At 6,1%, inflation has reached the lowest point since June last year when it was at 6%, but still higher than the 5,6% recorded in April last year.

The Namibia Statistics Agency released the inflation figures for the month, showing an annual inflation rate for April at 6,1% and, at zonal level, only the northern regions had it rough at 6,3%.

South Africa’s inflation rate for April was recorded at 7,1% during March.

The central region recorded an inflation rate of 5,9% and the southern region 6%.

At the national level, inflation dropped by 110 bps to 6,1% year-on-year in April com- pared to 7,2% year-on-year in March, thanks to a sharp deceleration in transport inflation.

NSA said the major contributors to the annual inflation rate for April were food and non-alcoholic beverages (2,5 percentage points); alcoholic beverages and tobacco (0,9 percentage point); housing, water, electricity, gas, and other fuels (0,7 percentage points); and transport (0,6 percentage points) while all other divisions’ contribution stood at 1,5 percentage points.

Inflation for goods was estimated at 8,2%, while it was at 3,2% for services.

The average annual inflation rate for the April 2022 to April 2023 period stood at 6,7%, while the 12-month average annual inflation rate from May 2022 to April 2023 was at 6,8%.

To contain inflation at that rate, the current repo rate of 7,25% appears to be appropriate, but Oxford Economics analyst Gerrit van Rooyen said the Bank of Namibia will most likely hike interest rates again.

“We expect that the Bank of Namibia will raise its policy rate by a further 25 bps to 7,50% in June, following an expected 25-bps increase by the South African Reserve Bank later this month, to stay in step with the monetary policy decisions of its South African counterpart,” said Van Rooyen.

The analyst said this slowdown would continue even after mid-year, as he anticipates that transport price inflation will ease thanks to base effects and as the global oil price will be constrained by weaker global economic activity during this period. He added that fuel prices, which are normally

the drivers of local inflation, will decline. “We forecast that the average Brent crude spot price will decline to US$82,70 per barrel in 2023 from US$100,80 per barrel in 2022.” Transport and food inflation have been the main drivers of inflation locally, and although food prices remain a bit elevated, Van Rooyen said he expects food price inflation to peak in the second half of 2023 before subsiding during the rest of the year.
The elevated global maize price and recent weakening of the Namibia dollar caused high food price inflation to persist.

Van Rooyen said he projects the average inflation rate to moderate to 5,7% this year from 6,1% in 2022. To beat inflation this year, and if inflation continues on a downward path, one would need to grow their income above that rate this year to avoid being in the negative rates territory.

NSA’s analysis of the average retail prices of selected products for April 2023 revealed that consumers in the central part of the country paid the highest price for pure sunflower oil (750 ml) at N$36,89 followed by southerners at N$36,40, while consumers in the north paid the lowest price of N$36,07.

For white bread (standard loaf), consumers in the central region paid the lowest price at N$13,16 while the highest price was paid by consumers residing in the south at N$13,70.

Consumers in the south paid the lowest price for brown sugar (1kg) at N$18,90, with the highest price paid by consumers in the central part of the country at N$19,99.

The full details and the report on April 2023’s inflation level is available on the NSA website.

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