• Market Watch

FNB projects inflation at 5%

• 3 Months Ago - 2024-06-04 00:00:00

FNB Namibia says it expects the inflation rate to hover around the 5%-mark for the year, adding it should slightly rise above 5% in the short term.
“Headline inflation increased from 4.5% year-on-year (y/y) in March 2024 to 4.8% y/y in April 2024. Looking ahead, we anticipate a further rise to 5% in May 2024, with inflation remaining
above 5% in the short term,” FNB Namibia said in its consumer price index (CPI) preview for 2024.
The projection is based on an expected drought fuelled by the El Niño weather phenomenon which the financial institution said will likely drive food inflation.
“This expected resurgence can be attributed to various factors, most notably the ripple effects of El Niño-induced price pressures on food inflation. These effects are expected to be particularly pronounced in the latter half of the year, driven by an anticipated decrease in supply resulting from unfavourable harvest conditions,” FNB Namibia said.

Fuel
Additionally, fuel prices, bolstered by both an increase in the Namport levy and global oil price trends remain high, it said.
“This, coupled with weak exchange rates, contributes to the upward pressure on transport prices.
We anticipate the most significant upward pressure on prices within the transportation inflation category, with an expected rise from 5.9% year-on-year in April 2024 to 7.7% in May 2024,” the bank said.
This projection is influenced by recent actions such as the ministry of mines and energy’s fuel price adjustments in April.
Following the announcement, petrol prices climbed by N$1.52 to N$22.30 per litre, while diesel 50ppm and diesel 10ppm saw increases of N$0.72 each, now priced at N$21.77 and N$21.97 per litre, respectively.
“These adjustments were attributed to multiple factors, including heightened global oil prices, a depreciation of the exchange rate, and an increase in the Namibian Ports Authority (Namport) levy for handling and wharfage services,” FNB Namibia said.

Electricity
A planned levy hike by the Electricity Control Board (ECB) would also drive inflation in the housing and utilities sector, it added.
“In the housing and utilities sector, we foresee a rise in prices towards the end of the year, propelled by constrained water supply. The higher prices will be compounded by an 8% tariff hike announced by the Electricity Control Board, effective July 2024.
“The rise in transport costs would not only affect transport inflation, but pass through towards other industries, influencing overall headline inflation.
“Given that these three sectors collectively represent approximately 59% of the Consumer Price Index basket, the anticipated escalation in transport and utility costs is likely to not only have a direct impact on headline inflation, but also cascade through the economy, elevating input costs across industries and consequently pushing up prices in other sectors due to secondary effects,” FNB Namibia said.

Monthly performance
Monthly inflation is projected to decelerate, moving from 0.7% in April 2024 to 0.4%
in May 2024.
“Despite this moderation, the presence of a positive figure underscores a continued marginal increase in prices month-on-month, affirming our stance on the persistent upside risks to inflation,” the bank said.
Inflation was expected to stabilise during the month of June, FNB Namibia said.
“In terms of core inflation, we anticipate a marginal decrease of 0.1 percentage points to 4.4% y/y in May 2024, followed by stability in June 2024. However, we project a reversal in July 2024, as the risks, particularly the impact of heightened transport and electricity costs on input expenses across sectors, begin to materialise,” FNB Namibia said.