…Resurgent prices derail Namibia’s war against poverty
By Hilary Mare
GLOBAL growth is still in a crisis with a seemingly increasing number of emerging-market currencies in free fall, this due to a conflux of forces – a slowdown in China, prospect of higher borrowing costs in the US and a slump in commodity prices – leading investors to shun developing nation assets.
With greater bearing on the Namibian economy, the South African rand and its economy have continued to decline and this, coupled with the drought, have had very little mercy on our inflation with analysts predicting a gloomy outlook that will without a doubt negatively impact the poor vehemently.
In essence, Namibian Statistics Agency (NSA) in releasing the inflation numbers for May last week, highlighted that annual inflation rate had increased to 3.8 percent in May 2018, from 3.6 percent in the previous month.
This inflation statistical report notes that inflation was mainly driven by education, health, transport and alcoholic beverages and tobacco which increased by 9.9 percent, 5.7 percent, 5.6 percent and 5.4 percent respectively.
The 12-month average inflation rate for the period June 2017 to May 2018 stood at 4.7 percent, while the calendar year average from January 2018 to May 2018, was estimated to be 3.6 percent. Similarly, monthly inflation increased to 0.4 percent in May 2018 compared to 0.3 percent recorded during the previous month.
While this may have painted a gloomy outlook, it has been further acerbated by that fact that the Ministry of Mines and Energy increased fuel pump prices by at least 60 c/l on 6 June 2018. Also, Namport tariffs for controlled petroleum products have increased by N$2 from N$34 to N$36 per kilo litre.
Indileni Nanghonga, Junior Analyst at Simonis and Storm told Confidente last week that inflation is a real confidence killer in the already depressed Namibian economic environment and will start to drift upwards in the coming months as the recent spike in oil prices filters through the supply chains, especially in the transport category and as the rand continues to weaken.
“This will simultaneously feed through to other inflation categories such as food and beverages. Our view is that inflation will increase at a moderate pace for the remainder of the year and our average annual inflation forecast for 2018 remains at 4.1percent,” she said.
With these statistics in mind, one can surely predict that it’s getting more expensive to be poor and prospects present a huge dent in Government’s bid to fight the sting of poverty and ferry the country on a prosperity path.
Indeed, 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 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 tend 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.
Using polling data for 31 869 households in 38 countries and allowing for country effects, a research done by World Bank researchers Easterly and Fischer, shows that the poor are more likely than the rich to mention inflation as a top national concern. This result survives several robustness checks. Also, direct measures of improvements in the well-being of the poor – the change in their share of national income, the percentage decline in poverty, and the percentage change in the real minimum wage – are negatively correlated with inflation in pooled cross-country samples. Essentially therefore, high inflation tends to lower the share of the bottom quintile and the real minimum wage – and tends to increase poverty.
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. 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.
Today, Namibia’s economists are warning that according to their calculations the prices for food are likely to continue picking up throughout the year due to expected price increases in maize and oil.
“Future prices at the South African Future Exchange suggest price increases for white and yellow maize of some 7 percent by December 2018 and some 1 percent for wheat. Oil prices have also been on the increase triggering fuel price increases that will have impacts on the transportation costs of goods and eventually on the production goods of businesses as well as the costs of consumer products,” noted Klaus Schade, the research associate with the Economic Association of Namibia. Schade further said that the increase in food prices is bad news for low-income earners and the poor since they spend the largest share of their total consumption on these items.
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 28 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