Martin Endjala
THE cost of living is estimated to continue rising, despite indications that headline inflation rates are steading increasing with small margins as monthly inflation rates for July was recorded at 0.3 percent, up from 0.1 percent in June.
This is the 23rd month in a row that monthly inflation has recorded a small increase, rising at an average of 0.5 percent per month since September 2021.
According to Simonis Storm Securities Economist, Theo Klein, an overview of the country’s current inflation rate, normalisation of global raw material prices, and decreasing commodity prices are resulting in lower production costs, as evidenced by lower Producer Price Indices of the country’s main import partners.
South Africa’s year-on-year inflation rate increased to 4.8 percent, China 4.4 percent, Europe 3.4 percent and India increased to 4.1 percent.
Additionally, South Africa imported 23.3 percent of their goods from China, which implies they should also be seeing less inflationary pressure.
He opined that lower producer costs in Namibia’s key trading partners should therefore aid lower import and consumer prices.
The Rand typically performs poorly when commodity prices decrease due to its reliance on commodity exports.
Since August 2022, when commodity prices commenced a downward trend, Klein said the Rand has depreciated by 9.4 percent while lower commodity prices should benefit consumers with lower merchandise goods for example (furniture, electronics, etc.) prices, the weaker Rand/US dollar exchange rate limit.
Meanwhile, Brent crude gained upward momentum at the end of June, and is trading at USD 86.79 barrel at the time of writing.
This comes after Saudi Arabia and Russia announced supply cuts and the announcement that US stockpiles are declining.
“Currently, consensus forecasts on Bloomberg estimate Brent crude prices at USD 84 barrel by end of 2023. If realised, this implies that local fuel prices are likely to remain relatively flat until the end of the year as we expect a slightly stronger Rand due to US dollar weakness,” explained Klein.
“The United Nation Food and Agriculture Index indicates that global food prices remain on a declining trend, which is expected to alleviate inflationary pressures globally,” he said.
Future contracts of most soft commodities are said to have been priced lower than their current spot prices.
“However, there are multiple risks to local food prices. The expected increase in wheat prices is due to Russia’s recent announcement of its withdrawal from the Black Sea Grain initiative, hindering Ukraine’s exports of wheat to the rest of the world, which is an upward risk to lower food prices locally. Ukraine is now forced to use the Danube River to ship their grain, which is currently a risk because of the river’s low water levels.
“Furthermore, India’s ban on certain rice exports has already led to major rice price increases in other parts of the world and would likely filter through to Namibia as well. Sugar prices are rising due to India’s uneven rainfall, causing a concern that supply of sugar will fall short in coming months. Vegetables are becoming more expensive in Namibia and globally due to climate change concerns and forecasted lower supply levels, as crop yields and harvests are negatively impacted,” he said.
Klein explained that global farmers are advised to plant less crops in preparation of El Nino.
“Cabbage, onion, broccoli and cauliflower, beetroot and citrus fruits are the top five drivers of food inflation. However, cooking oil, biltong and banana prices decreased more than five percent in July 2023. The Namibian market is forecasting slightly higher short-term inflation compared to expectations at the start of the year. Interestingly, inflation expectations over the long-term (10 years plus) have decreased.
“We maintain our forecast of 5.9 percent for 2023 and 5.1 percent for 2024. In SA, the market is forecasting July 2023’s inflation print to come in between 4.5 percent and 5.0 percent (release date 23 August 2023) and this should not prompt any further rate hikes in South Africa and by implication Namibia, said Klein.
However, he anticipates a 25 basis points repo rate hike by the South African Reserve Bank to follow the Fed’s 25 bps rate hike in the coming months.
“This will then see the Bank of Namibia (BoN) hiking the repo rate which currently stands at 7.25 percent.”
BoN last week announced that the Monetary Policy Committee is set for August 16 in Oshakati, Oshana region.
