Transport inflation to slow- Kavishe

By Business Reporter

DANIEL Kavishe, FirstRand Namibia Group Economist has highlighted that the Group expects transport inflation to slow down as cost pressures ease owing to a falling Brent crude oil price.

“As such, we expect overall prices to retreat in response to lower transport costs and fragile consumer demand which are likely to spill over into other inflation categories,” he explained.

With consumer income increasingly coming under pressure, Kavishe further stated that it comes as no surprise that the May annual inflation print comes in lower at 4.1 percent y/y compared to 4.5 percent in April.

“As expected, transport inflation increased from 7.1 percent to 7.6 percent, with this increase attributed to pass-through effects of increased road user charges and increased pump prices. This was however countered by downside pressures on prices of other categories such as food and non-alcoholic beverages category, which, surprisingly moderated to 4.7 percent from 5.5 percent in the previous month. This was despite concerns that the persistent drought will exert upward pressures on food inflation. Similarly, the housing and alcoholic beverages and tobacco categories slowed down from 2.2 percent and 7.5 percent to 1.9 percent and 5.5 percent respectively.”

Core inflation however retreated to 3.3 percent from 3.5 percent a year ago which supports the inherent weakness from the demand side. It therefore comes as no surprise that the central bank has opted to keep interest rates accommodative at 6.75 percent.

“While the bank projects inflation to be contained at 4.5 percent for 2019, growth is expected to remain weak, with downside risks emanating from the prevailing drought, weak growth in neighbouring economies, and escalating global tensions weighing on commodity exports. As real sector data continues to disappoint, the Monetary Policy Comittee will be looking towards the first quarter GDP numbers for guidance regarding the effect of its current accommodative monetary policy,” also explained Kavishe.