Staff Writer
The closure of the Strait of Hormuz and the resulting surge in global oil prices are expected to push inflation higher in Namibia and South Africa over the coming months, although analysts believe the impact will be temporary and unlikely to trigger a prolonged inflation cycle.
According to a market analysis by Simonis Storm, Brent crude oil is currently trading near US$93 per barrel after reaching US$98 earlier this week, around 37% higher than a year ago.
The increase has already translated into higher fuel prices in both Namibia and South Africa, with fuel price adjustments recorded in April and May.
The report argues that the current situation represents a supply shock rather than a sustained demand-driven inflationary trend.
Analysts say weak economic conditions in both countries are likely to limit broader inflationary pressures. South Africa’s unemployment rate remains above 31%, while Namibia continues to experience subdued credit growth.
The analysis notes that Namibia’s inflation cycle likely reached its low point in March at 2.1%, before rising to 3.1% in April as fuel prices increased.
South Africa’s inflation rate similarly rose from 3.1% to 4.0% during the same period.
Inflation in both countries is expected to climb further, potentially approaching 5% during the third quarter of 2026.
This would be driven by the expiry of temporary fuel levy relief measures and the broader impact of higher transport costs on food and utility prices.
Analysts forecast Namibia’s average inflation rate for 2026 at approximately 4.5%, above the Bank of Namibia’s current projection of 3.7%.
However, the report maintains that the increase will be temporary.
As oil price effects fade and base comparisons become more favourable, inflation is expected to decline from the fourth quarter onward and move back towards 3.5% during 2027.
South Africa’s Reserve Bank increased its repo rate by 25 basis points to 7.0% on 28 May, marking its first rate increase since 2023.
The move was intended to reinforce inflation-fighting credibility and prevent temporary price pressures from becoming entrenched.
Analysts expect one further 25-basis-point increase in July, which would take the repo rate to 7.25%, before the tightening cycle ends.
In Namibia, the Bank of Namibia is expected to keep its repo rate unchanged at 6.5% at its upcoming June meeting.
The report estimates only a 20% probability of an additional 25-basis-point increase, mainly as a precaution should the South African rand come under significant pressure.
The report highlights strong demand for Namibian government securities, noting that Treasury bill yields are currently between 16 and 48 basis points lower than equivalent South African instruments.
Particular attention is being given to Namibia’s government bond market, where the yield curve remains exceptionally steep.
Yields range from 7.32% on the GC27 bond to 11.82% on the GC50 bond, a spread of approximately 450 basis points.
This compares with a slope of around 200 basis points on South Africa’s government bond curve.
The analysis argues that the steep curve offers investors an opportunity to lock in double-digit nominal yields while long-term inflation expectations remain anchored around 4%.
Under such conditions, investors could potentially earn real returns of between 6% and 7% on government debt.
Among nominal bonds, the report identifies the GC30 to GC35 segment as particularly attractive because it offers yields between 9.3% and 10.6% while providing additional return potential if interest rates begin falling.
Inflation-linked bonds also remain attractive, with real yields ranging from 4.5% to 6.1%. The GI36 and GI41 bonds were highlighted as offering some of the most attractive inflation-adjusted returns.
