12 October 2018

Namibia: Growing Headline Inflation Poses Danger to Low Income Earners

The steadily growing headline inflation is putting a tight squeeze on the living standards of low income earners. While high income households may be able to absorb the price shocks with less discomfort, it is hardly the case at the other end.

This is evident in this week's Namibia Consumer Price Index compiled by the Namibia Statistics Agency, which shows that annual inflation has been picking up from 3.5% in March 2018 to 4.8% in September 2018. This massive 37% increase severely diminishes the ability of poor households to survive on their meagre incomes. Annual inflation measured monthly has consistently gone higher and higher since March mostly due to a high base effect from the previous year.

According to the NSA's inflation report, prices for goods rose by 4.9% in September compared to 4.6% in August, while prices for services increased by 4.7% compared to 4.1% in August. Prices for both categories accelerated at their fastest pace this year.

The strong increase in public transportation fares that resulted in an inflation rate of 18.0% compared to September 2017 was the main driver behind the rise in service inflation.

On a monthly basis, inflation increased by 0.8% in September 2018 from 0.03% registered in August 2018.

Research Associate at the Economic Association of Namibia, Klaus Schade said the higher inflation was expected, as the combined effect of higher fuel prices and fares for public transport services is exerting upward pressure on the inflation rate.

"Namibia currently experiences only the direct impact, but higher transportation costs will have an impact on the prices of other goods soon through so-called second round effects. Furthermore, the weaker currency compared to a year ago, even though it has gained some ground again since the middle of September, will result in higher prices for goods imported from outside the Rand area," Schade said.

He stressed that sourcing goods to the extent possible locally will protect producers and consumers from increasing transportation costs and a weaker currency.

"In the meantime, however, consumers have to tighten the belt, not only because of rising price levels, but also because of a tight labour market," Schade said.

CAPTION: Bread and cereal prices rose at the fastest pace in September (3.8%) after relatively stable prices during the first four months this year.

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