Import costs expected to rise
Inflation may well be driven by the threat of two interest rate increases by the Federal Reserve, an anticipated Moody's downgrade for South Africa and a weakening rand.
This is the opinion of PSG analyst Michele Arnold following the release of the inflation numbers for the month of April.
The inflation rate declined to 6.7% year-on-year (y-o-y) in April, from 7.0% y-o-y in March and 7.8% y-o-y in February, according to the Namibia Statistics Agency.
Said Arnold: “April marks the third straight month that inflation has subsided thanks to lower food price inflation, which has begun to ease following good regional rains that have lowered maize contract prices. Food inflation has fallen from a high of 13.5% (y-o-y) in January to 5.3% y-o-y in April. The headline inflation rate is expected to decline slowly over the course of 2017, driven by lower food inflation.
“However, housing, utilities and fuel prices will keep inflation relatively high. Regarding electricity prices, the Electricity Control Board announced on Tuesday that it approved NamPower's submission for an 8% bulk tariff increase, effective July 1.”
Of any expected fuel price increments, Arnold said: “Regarding fuel prices, we expect the Brent crude oil price to average US$51.7 per barrel this year and for the Namibian dollar to weaken further to N$14/$ by year-end, which would raise the country's cost of importing fuel.”
PSG were also expecting one more domestic rate hike. “Our base case remains for the Bank of Namibia to raise interest rates once in the second half of 2017 (H2),” Arnold said.
“The recent moderation in inflation and the worse-than-expected slump in economic growth could have been reasons to change this view to one which assumes the policy rate will remain stable throughout 2017.
“However, the credit rating downgrades of South Africa's sovereign debt to so-called 'junk status' by two credit rating agencies in the wake of South African President Jacob Zuma's midnight cabinet reshuffle on March 31 gives us pause to alter our base case.
“We expect further South African ratings downgrades and two more US interest rate hikes this year will put pressure on the South African rand in H2, which would raise Namibia's import costs and filter through to inflation. Given that concerns over the economy may recede this year thanks to a mining-led rebound in economic growth, we still think one interest rate hike in 2017 is on the cards,” Arnold concluded.
STAFF REPORTER
This is the opinion of PSG analyst Michele Arnold following the release of the inflation numbers for the month of April.
The inflation rate declined to 6.7% year-on-year (y-o-y) in April, from 7.0% y-o-y in March and 7.8% y-o-y in February, according to the Namibia Statistics Agency.
Said Arnold: “April marks the third straight month that inflation has subsided thanks to lower food price inflation, which has begun to ease following good regional rains that have lowered maize contract prices. Food inflation has fallen from a high of 13.5% (y-o-y) in January to 5.3% y-o-y in April. The headline inflation rate is expected to decline slowly over the course of 2017, driven by lower food inflation.
“However, housing, utilities and fuel prices will keep inflation relatively high. Regarding electricity prices, the Electricity Control Board announced on Tuesday that it approved NamPower's submission for an 8% bulk tariff increase, effective July 1.”
Of any expected fuel price increments, Arnold said: “Regarding fuel prices, we expect the Brent crude oil price to average US$51.7 per barrel this year and for the Namibian dollar to weaken further to N$14/$ by year-end, which would raise the country's cost of importing fuel.”
PSG were also expecting one more domestic rate hike. “Our base case remains for the Bank of Namibia to raise interest rates once in the second half of 2017 (H2),” Arnold said.
“The recent moderation in inflation and the worse-than-expected slump in economic growth could have been reasons to change this view to one which assumes the policy rate will remain stable throughout 2017.
“However, the credit rating downgrades of South Africa's sovereign debt to so-called 'junk status' by two credit rating agencies in the wake of South African President Jacob Zuma's midnight cabinet reshuffle on March 31 gives us pause to alter our base case.
“We expect further South African ratings downgrades and two more US interest rate hikes this year will put pressure on the South African rand in H2, which would raise Namibia's import costs and filter through to inflation. Given that concerns over the economy may recede this year thanks to a mining-led rebound in economic growth, we still think one interest rate hike in 2017 is on the cards,” Arnold concluded.
STAFF REPORTER
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