By Hilary Mare
WITH greater bearing on the Namibian economy, the South African economy and its currency have continued to decline and this coupled with the drought have had very little mercy on Namibia’s inflation with analysts predicting a gloomy inflation outlook that will without doubt hit the poor the hardest.
A recent Fitch outlook downgrade may have sounded alarm bells but figures released by statistics chiefs look more decisive in defining how price outlook sits in the last quarter of the year.
Essentially, the Namibia Statistics Agency (NSA) last week released inflation statistics for August, with annual inflation standing at 6.8 percent at the end of last month compared to 3.4 percent recorded in the prior year. Monthly inflation slowed to 0.2 percent compared to 0.6 percent recorded in July 2016.
According to the NSA, the Namibia Consumer Price Index (NCPI) grew by 0.2 index points m-o-m in August compared to 0.8 index points recorded in the prior month. The slow monthly growth emanated from a slow growth in the high weighted categories, food and non-alcoholic beverages (-0.2 percent), transport (0.5 percent) and housing, water, electricity, gas and other fuels (0.2 percent).
“We maintain our view that inflation will continue to grow at a moderate pace going forward. We do not expect any rate hikes in Namibia for the remainder of the year and we expect inflation to average at 6.5 percent for the year,” the institutional research department at Simonis Storm Securities stated last week.
The growing inflation which looks like it may be a spoiler to the Harambee prosperity plan has had its consistent culprit and this past month has been no exception.
Housing, water, electricity, gas and other fuels was the highest weighted category in the basket (28.4 percent) and grew by 8.0 percent during august 2016 compared to 2.4 percent recorded in the prior year. On a monthly basis, this category grew at a slower pace of 0.2 percent compared to 0.9 percent recorded in the prior month. The slow growth can be attributed to a sharp decline in water supply, sewerage services and refuse collection sub-category to 0.9 percent m-o-m in August 2016 compared 8.7 percent m-o-m recorded in July 2016. Electricity, gas and other fuels also decreased to 1.1 percent m-o-m from 3.2 percent recorded in the prior month.
In terms of food and non-alcoholic beverages, inflation growth in this category remains significantly high in annual terms, growing by 11.5 percent during august 2016 compared to 5.5 percent recorded in the prior year. On a monthly basis, this category contracted by 0.2 percent compared to a positive growth of 1.0 percent recorded in the prior month. The contraction emanated from a monthly contraction in vegetables (-3.2 percent), fruits (-1.5 percent), meat (-0.1 percent) and bread and cereals (-0.2 percent).
Annual inflation under the transport category grew by 3.4 percent y-o-y in August compared to a contraction of 1.4 percent registered in the prior year. According to the NSA, the uptick in the growth of transport resulted from increases recorded in the price levels of purchase of vehicles and operation of transport equipment sub-categories, which increased to 9.6 percent and 2.2 percent in August from 7.1 percent and -4.6 percent, respectively in August 2016.
Looking at the alcoholic beverages and tobacco category, annual inflation under this category continues to grow at a slower pace of 5.6 percent y-o-y compared to 7.2 percent recorded in the prior year. Inflation in tobacco sub-category has slowed down drastically to -0.2 percent y-o-y compared to 8.9 percent recorded in the prior year. In contrast, monthly growth in alcohol beverages and tobacco came in at -0.1 percent in August compared to a contraction of 0.3 percent in July 2016. The monthly growth can be attributed to the increase in tobacco inflation to 0.3 percent in august compared to -3.0 in July 2016. The difference in the rate of inflation between income groups is too small to matter much in the short-term, adding just a few dollars to the average family’s monthly bills. But the longer that low-income families continue to experience faster price increases, the bigger the effect will be, quickly adding up to hundreds of dollars a year in extra costs for the households least able to afford it.
This trend is unusual. Past studies have found that the rate of inflation tends to be more volatile for the poor, largely because they have historically spent more of their income on basic goods, which tends to see bigger price swings than other goods. But over the long-term, low-income families’ rate of inflation tracks closely to the average household.
Over the past two months, prices have risen more quickly for many of the things that low-income households spend a lot of their money on, such as food (Namib Mills increased prices by 10 percent twice earlier in the year). As a result, these households — families earning less— are experiencing a higher rate of inflation than the public at large even as their wages have stagnated with teacher denied a desired pay hike by the Government.
Poverty and inequality are two important characteristics of the socioeconomic context in post-colonial Namibia. Rooted in widespread unemployment, particularly amongst those with lower educational attainment, and inequalities in access to quality education, Namibia’s level of income inequality is amongst the highest in the world, while millions continue to live in poverty almost 26 years after the country’s democratic transition.
While many factors combine to determine the income level and poverty status of a household, including the presence of a resident income-earner, receipt of remittances and access to income from social grants, the prices faced by households are central in translating nominal income into specific utility levels. Consequently, price changes over time will impact, positively or negatively, on welfare and are therefore critical to our understanding of households’ welfare. In conclusion it is important that we realise that the inflation rate is one of the central macroeconomic indicators in societies around the world. Prices are a critical variable in translating nominal income into welfare and, as such, consumer price indices are used internationally to compensate economic agents for losses in purchasing power over time. At the current rate of inflation, it is safe to say the poorer will continue to get poorer and thus this is the time that Government activates initiatives that rid the country of future inflation such as the one imported from South Africa.
Confidente. Lifting the Lid. Copyright © 2015