Drought starts to bite as inflation spikes

0
31
Suta Kavari

Inflation in Namibia accelerated sharply in January as the effects of the severe drought translated into higher food prices. The drought-induced increase in good prices, combined with a weaker currency and the lower base for petrol prices, pushed up inflation to 6.1 percent, from 5.3 percent in December.

Food and non-alcoholic beverages rose 7.2 percent year-on-year, largely on account of a 7.5 percent increase in food inflation. Bread and cereals rose 9.9 percent, due to the surge in grain prices.

The drought conditions around the country have exerted pressures on food production, reflected in the reduced domestic cereal harvest. Food prices, maize prices in particular, have increased close to 30 percent this year alone, as supply declines on the back of persistent drought in the southern African region and the weakening Namibia dollar.

Food prices will likely continue on this upward trajectory as drought conditions persist. Reduced food production, coupled with increasing import costs in South Africa, as a result of the depreciation of the rand, will keep food prices elevated for the foreseeable future.

Downward pressures from falling global oil prices have started to fade and we expect petrol inflation to also start ticking up. The increase in ‘sin-taxes’, announced in the February National budget, will push up alcohol and tobacco inflation, adding to the upward pressures on inflation.

While future interest rate hikes in Namibia will largely depend on the South African Reserve Bank’s tightening cycle, the Bank of Namibia will also be cognisant of trying to maintain local price stability. With inflation having been largely muted in 2015, we expect inflation to average 6 percent in 2016 and remain largely elevated at around the 6 percent band.

* Suta Kavari is an investment strategist at Capricorn Asset Management.

LEAVE A REPLY

Please enter your comment!
Please enter your name here