EAN reiterates call for income specific inflation rates

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Edgar Brandt

WINDHOEK – The Economic Association of Namibia (EAN) has once again called for the calibration of additional inflation rates catering specifically for low, middle and high-income households. This, says Klaus Schade, the Director of the EAN would provide more detailed information that could for instance guide employers and trade unions during wage and salary negotiations.

This would result in settlements that more accurately reflect the rising costs of living of different income groups.

The call by the EAN comes as the latest inflation rates, compiled by the Namibia Statistics Agency (NSA), indicate that the inflation rate increased slightly from 3.5 per cent in the previous two months to 3.6 per cent in April and is on par with the annual inflation rate for January 2018. The latest inflation rate is substantially lower than the inflation rate for April 2017 of 6.7 per cent and lower than the annual inflation rates since December 2015 (3.7 per cent). On a month-to-month basis, inflation rose by 0.3 per cent in April compared to March. The month-to-month price increases accelerated compared to March, when average price levels were 0.1 per cent higher than in February 2018.

“As raised in the past, in a country with one of the highest income inequalities globally, an average inflation rate is less useful as in countries with a more homogenous distribution of income. Low-income households have different consumption patterns than middle or higher income households since they need to satisfy their basic needs first, furthermore, government could base adjustments of the monthly social grant amounts on the inflation rates for low-income households rather than on the average inflation rate,” said Schade while commenting on the latest inflation rates.

Schade added that the recent uptick in inflation is caused by faster price increases for goods (up by 3.1 per cent from 2.8 per cent in March), while price increases for services decelerated from 4.4 per cent in March to 4.3 per cent in April. He noted that the four main categories that account for 71.7 per cent of the consumption basket (meaning an average household spends N$71.70 on these items of every N$100.00 they spend) have all been affected by accelerated price increases compared to March 2018.

He also pointed out that prices for food and non-alcoholic beverages that contribute 16.5 per cent to the consumption basket, increased by 2.9 per cent in April compared to 2.7 per cent in March while prices for bread and cereals continue to decline in a trend that started in May 2017. “They were 1.5 per cent lower in April 2018 compared to April 2017, while meat prices rose further by 7.9 per cent up from 7.8 per cent in March. These two items account for more than 50 per cent of the food basket, bread and cereals for 4.8 per cent and meat for 3.5 per cent, and therefore have a strong impact on overall food price changes,” Schade noted.

Meanwhile, prices for fruits rose by 10.1 per cent, which is the highest increase since February 2017 (13.1 per cent), while the costs for vegetables rose by 4.4 per cent, also the highest increase since March 2017 (4.3 per cent). Costs for housing, water, electricity, gas etc. went up by 3.4 per cent in April 2018, which is slightly higher than in the preceding two months (March 3.3 per cent, February 3.2 per cent), but much lower than in April 207 (9.4 per cent). Schade noted that this category carries the highest weight of 28.4 per cent in the consumption basket. This increase was mainly caused by higher prices for the regular maintenance of buildings that rose by 3.2 per cent in April compared to 1.7 per cent in March.

On the property rental, payment and water supply front prices remained unchanged (7.2 per cent) compared to the previous months while transport inflation accelerated from 5.4 per cent in March to 5.8 per cent in April owing to higher costs for the operation of transport equipment, which refers to the costs of fuel. These costs rose by 6.2 per cent compared to 5.8 per cent in March 2018. The operation of transport equipment accounts for almost two thirds (62.8 per cent) of the weight of the category ‘transport’ and hence has a strong impact on the overall price changes in this category.

Prices for alcoholic beverages and tobacco rose faster in April (4.7 per cent) than in March (4.3 per cent) caused by a 5.7 per cent increase in the prices for alcoholic beverages. Schade pointed out that this was the highest increase since February 2017, while price increases for tobacco products slowed down to 0.5 percent from 1.9 percent in March.

“In contrast to price changes for alcoholic beverages this was the lowest price increase since November 2016 despite an additional 5 percent ‘sin’ tax on alcoholic beverages and tobacco products announced in the budget statement,” said Schade.

While price changes for most categories were positive, the categories of ‘clothing and footwear’ and of ‘communication’ showed negative price changes meaning prices were actually lower than in April 2017. Prices for communication dropped by 0.2 per cent, while prices for clothing and prices for footwear declined by 6.4 per cent and 4.4 per cent respectively.

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