16 November 2012

Namibia: Inflation Monster Rears Head

The Annual Rate of Inflation Went Up to an Eight month high of 7.1% in October buoyed by rising food prices.

Statistics from the Namibia Statistics Agency shows that on an annual basis inflation increased from 6.7% in September to 7.1% in October.

Inflation had been on a downward trend for the better part of the year before reversing the trend in September when it rose from 5.8% to 6.7%.

Following a substantial increase in September to 9.2% from 7.3% in August, food price inflation ticked up even further in October to 10.1% (year on year). The categories which experienced the most significant increases included milk, cheese and eggs (5.7% to 6.9%), Meat (11.1% to 12.4%) and Fruit (4.6% to 5.2%).

Patrick Britz, an Assistant Portfolio Manager at Capricorn Asset Management says bread and cereal price inflation in Namibia has picked up significantly following the large increase in the international prices of yellow maize and wheat as a result of severe droughts affecting the world's largest grain producers in June/July this year.

Bread and cereal price inflation increased from 6.5% (year on year) to 11.1% in September, and again in October to 12.4%.

Britz added: "The recent climb in domestic grain prices, and consequently most food prices, was largely anticipated as there is a lag before high international grain prices filter into the local market. However, the upward inflation trajectory has been perpetuated by a weaker exchange rate stemming from the recent labour unrest in South Africa which resulted in the country's sovereign credit rating being downgraded."

It was not all doom and gloom as October also saw a slight decrease in transport inflation to 6.1% from 6.3% (year on year). The annual rate of services' inflation decreased from 7.5% in September to 6.2% in October

Although consumers are likely to get a reprieve following the announcement by Namib Mills that the price of Maize Meal will ease slightly at the end of this month, Britz says the continued cost push pressure attributed to unfavourable exchange rate developments, coupled with strong levels of domestic demand as the festive season approaches, creates the perfect backdrop for a continued uptick of domestic inflation going into 2013.

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