BoN Warns That Rising Food Prices are Fuelling Inflation

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By Anna Shilongo

WINDHOEK

Inflation in Namibia surged to 7.1 percent in May from 6.9 percent the previous month stoked by rising prices of crude oil and food, amid indications that the central bank would again raise its main bank rate in August.

The Bank of Namibia (BoN) earlier warned that rising food prices in the face of looming drought and transport costs are fuelling inflation.

Market analysts yesterday also pointed out that the bank is likely to raise its key repo rate next month.

The Bank of Namibia raised its key repo interest by 50 basis points to 9.5 percent in early June, warning that the inflation outlook was further deteriorating.

Commercial banks immediately adjusted lending rates to 13.75 percent sounding an alarm for Namibia’s already overburdened consumers.

This was revealed during the Bank of Namibia launch of the quarterly bulletin in the capital yesterday.

Addressing the media, the Director of Research in the Bank of Namibia, John Steyttler, said the inflation was increasing rapidly despite efforts to stem it.

Since the last monetary policy meeting in April this year, Steyttler said, the outlook on the inflation has deteriorated further, despite tighter domestic monetary conditions, adding that the inflation picked up to 6.9 percent in April compared to the 6.3 percent in March.

“This has been the highest level of inflation since 2003 when the annual rate of inflation was 6.6 percent. We don’t want to see or hear the increase in the inflation. Inflation affects every body one way or another,” he said.

However, the factors that continue to contribute to the relatively high inflation rate are increases in food prices and transport.

He also noted that the persistent high and volatile international oil prices continue to be a worrying factor that drives inflation in a number of net oil importing countries, Namibia included.

Steyttler also maintained that due to the strengthening of the economic activities in major economies of the world, the global economy continued to expand at a healthy pace especially during the first quarter of 2007, adding that the developing and emerging market economies continued to show solid growth on the back of the ongoing strong performances by China and India.

While the performances of the South African economy remained robust, with real GDP growth expanding by 4.7 percent in the first quarter of 2007.

Overall in Africa the short-term economic outlook was also positive, following the strong global growth.

He stressed that the region’s GDP growth is expected to accelerate to 6.2 percent this year.

Economic activities in the country were also estimated to have picked up during the first quarter of 2007, said the analyst.

Available indicators show positive performances in the mining sector, electricity, water, hotels, restaurants, transport, storage, communication and financial intermediation.

However, in relation to the previous quarter, sectors such as agriculture, hunting and forestry construction, wholesale and retail trade repairs slowed down.

There has also been a decline in transport inflation to 6.6 percent compared to 8.7 percent during the fourth quarter.

“The inflation is expected to continue increasing, still on account of categories of food and transport,” said the research director.

There have also been signs of second-round effects of food and oil price inflation, evidence by the upward trend in the inflation of the other categories in the consumer price Index basket.

“It is feared that this will have a negative effect on the overall level of inflation,” he said.

Meanwhile, growth in broad money supply decelerated at the end of the first quarter of 2007 both on a quarterly and annual basis.

On an annual basis, growth stood at a rate of 20.5 percent at the end of the fourth quarter of 2006.

While growth in the domestic demands was said to be abating in 2007 as witnessed by the slowing growth of demand indictors such as private sectors, credit extension and number of vehicles sold.

Growth in total number of vehicles sold also slowed down to 4.3 percent compared to a 7.0 increase during the same period.

Analysts also expressed satisfaction with the fiscal position of the government, adding that the government demonstrated commitment to reduce total debt as percentage of the GDP to 25 percent by 2007/08.

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