Declining inflation driven mainly by falling food prices

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Staff Reporter

Windhoek-The downward trend of the annual inflation rate observed during the 2017 calendar year continues and for the month of May 2017, the annual inflation rate decreased by 0.4 percentage points, to 6.3 percent from 6.7 percent recorded in May the previous year.

Statistician General and CEO of the Namibia Statistics Agency Alex Shimuafeni said the decrease resulted mainly from decreases in price levels of food and non-alcoholic beverages, which declined to 3.7 percent from 12.2 percent.

Alcoholic beverages and tobacco also declined to 3.3 percent from 7.3 percent, while furnishing, household equipment and routine maintenance of the house, declined to 4.9 percent from 5.5 percent, health having declined to 5.4 percent from 7.4 percent, while recreation and culture declined to 5.1 percent from 6.4 percent.

On a monthly basis, the monthly inflation rate declined to 0.1 percent as compared to 0.3 percent registered in the previous month.

Inflation is calculated based on a basket of goods and services, containing a representative sample of goods and or services commonly consumed in a country, and weighted in accordance with the relative percentage of expenditure allotted to each of the said goods at household level.

The price of these goods and services are then tracked over time, to illustrate the change in the cost of living over time. As spending patterns change, new products and services are added to the basket, and the basket reweighted so as to better capture the current spending patterns of the consumer at the current point in time.

As such, the inflation basket is generally reconstituted every five years. In Namibia, the basket was last rebased in 2013, using household expenditure data collected in the 2009/10 Household Income and Expenditure Survey. The basket now contains over 350 items, grouped into 12 categories and 55 sub-categories, for which prices are collected on a monthly basis from more than 900 retail outlets.

Namibian inflation however, is largely determined by three categories of the overall NCPI basket, namely: (a) Housing, water, electricity, gas and other fuels, (b) food and non-alcoholic beverages and (c) transport, which cumulatively make up just under 60 percent of the total inflation basket.

Additionally, following the rebasing of the NCPI basket in 2013, “alcoholic beverages and tobacco” make up an additional 12.6 percent of the basket, meaning that the four largest categories represent well over 70 percent of the total basket. As such, a large increase in inflation in these categories has a greater impact on the overall inflation than do increases in the lower weighted categories.

Thus, it is rare to see major increases in overall inflation attributed to the lower weighted categories, despite the fact that these categories may have seen relatively high inflation in their own right.

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