More relief from the price monster

A decrease in inflation does not necessarily mean that prices have decreased, it has rather increased at a slow pace compared to the previous period. A decrease in prices is known as deflation.

17 November 2020 | Economics

PHILLEPUS UUSIKU

An increase in the prices of goods and services is known as inflation which reduces the purchasing power of the domestic currency.

This implies that consumers will have to cut down on their consumption levels or alternatively increase their budget if they wish to maintain their consumption levels.

The annual inflation rate for October 2020 stood at 2.3%, down from 3.0% recorded in October 2019, a decrease of 0.7 percentage points, this according to Namibia Statistic Agency (NSA) in their Namibia Consumer Price Index (NCPI) report.

The slowdown in the annual inflation rate between October 2019 and October 2020 resulted mainly from decreases reflected in the price levels of clothing and footwear which accounts for 3.1% of the basket that declined by 6.1%compared to 0.9% recorded in October 2019, NSA says.

In addition, housing, water, electricity, gas and other fuels, which accounts for 28.4% of the overall basket declined by 1.3% compared to an increase of 1.9 percent recorded in October 201, NSA pointed out.

Commenting on the inflation statistics, Cirrus Capital (CC) notes that as rent prices remain deflationary for the year and account for nearly a quarter of the NCPI basket, the housing and utilities line remains an anchor for price increases.

“We believe this pressure will remain for the foreseeable future, given the deflationary housing market and pressure on household incomes driven by the ongoing macro environment which includes salary cuts and job losses”, CC said.

Furthermore, the transport category which accounts for 14.3% of the overall basket of NCPI also reflected a decline of 1.2% in October 2020 compared to an increase of 1.5% registered in October 2019.

Lastly, education which accounts for 3.6 % of the basket increased by 7.0 percent in October 2020 compared to 12.0 recorded in October of last year, NSA says.

Zones

Annual inflation in all the three Zones decreased. Zone 1(Northern regions) recorded the highest annual inflation rate of 2.6%, followed by Zone 2 (Khomas) with 2.4%, while the least inflation rate was registered in Zone 3 (//Kharas, Erongo, Hardap and Omaheke) at 1.8%, NSA pointed out.

The slowdown in the annual inflation rate of Zone 1 was mainly reflected in the price levels of clothing and footwear from 1.8% to -10.2%, housing, water, electricity, gas and other fuel from 0.9 to -2.6%.

The decrease in Zone 2 was mainly beheld in education from 15.2% to 6.4%, hotels, cafes, and restaurants from 3.9% to 0.5%, clothing and footwear from -1.5% to -3.6%.

Lastly, the slow down in Zone 3 was mainly emanated from decreases recorded in all the groups, except for communication and recreation and culture that increased from 1.6% to 3.4% and 1.1% to 4.1%, respectively.

Also commenting on the statistics, IJG Research notes that inflationary pressure in Namibia remains weak and continues to trend below South African inflation.

“While risks remain to the upside, we see these as muted in the short term in what is currently a very accommodative global monetary environment’, IJG says.

Oil prices and a further escalation of the US-China trade war remain the largest risks in the short-term, while domestic and South African fiscal deterioration pose medium-term risks as debt levels increase unchecked, eating into the already limited productive portion of expenditure, IJG pointed out. – [email protected]

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