Business Reporter
ACCORDING to economic analysts from local stockbroker and wealth management company, Simonis Storm Securities, Namibia stands to benefit from a temporary improvement in South Africa’s electricity crisis, as this would prevent further increases in food prices. Namibia heavily relies on food imports from South Africa.
Economic Analyst Theo Klein from Simonis Storm Securities explained that with load shedding diminishing in South Africa, this positive development is expected to prevent further increases in food and other consumer goods prices for now, benefiting consumer prices in Namibia. However, he added that the pass-through from currency weakness remains a risk for inflation. Klein said, “On an annual basis, the Rand exchange rate has depreciated by 15.8%, dropping below R19 against the US dollar, and closing at R18.84/$ at the end of June 2023. The Rand will continue to rely on US data and monetary policy decisions by the Fed. In fact, the US job market results at the beginning of July showed strong wage growth, leading to a stronger US dollar.”
He further added that Simonis Storm anticipates a 25bps interest rate hike by the Fed on July 26th. This move is likely to have a ripple effect, causing other countries like South Africa to raise their rates as well. Consequently, Namibia may find it necessary to increase its rates in order to maintain a favourable interest rate differential. Klein stated, “In this context, it is important to consider the possibility of an additional 25bps hike by the Bank of Namibia (BoN). This potential increase would align with the broader trend of tightening monetary policy in response to the actions taken by the Federal Reserve. Looking ahead, despite the potential for lower inflation, the impact of these rate hikes is expected to affect consumer spending.”
He also mentioned that the first quarter of 2023 (1H2023) ended with low inflation, as the annual inflation rate in June 2023 was the lowest since March 2022, standing at 5.3% y/y compared to 6.3% y/y in May 2023 and 6.0% y/y in June 2022. Supply-driven inflation is showing signs of easing as expected, with the high base from last year helping to lower annual inflation rates. So far, inflation has averaged 6.5% YTD, compared to our forecast of 5.9% for 2023.
Food remains the main driver of inflation, accounting for 2.2 percentage points of the annual inflation rate. All other categories of the Namibian Consumer Price Index (NCPI) contributed less than 1 percentage point to overall inflation, indicating easing inflationary pressures in key categories such as alcohol and tobacco (contributing 0.8 percentage points), transport (-0.01 percentage points), utilities (0.7 percentage points), and furniture (0.4 percentage points). However, out of the 65 different products in the NCPI, 17% recorded double-digit inflation rates in June 2023, compared to 11% of all products in June 2022.
“We believe that real consumption spending in 1Q2023 has declined (down 4.4% y/y) due to higher interest rates, lower credit extended to individuals, and expensive living costs. This marks the first contraction in consumption spending since 4Q2021. We expect consumption spending to remain weak going forward, which should also contribute to disinflation tendencies in certain NCPI categories,” Klein said.
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