Sep 20

Resurgent Namibia Consumer Prices Point to Rough Route for Inflation

By Josef Sheehama

Namibia is still some distance away from where we would like to be to sustainably meet the 3.6% or below inflation goal. Although annual inflation has been trending downwards since the turn of the second quarter, it remains unacceptably high at the beginning of 3rd quarter.

The consumer price jumped to 4.70% in August 2023 compared to 4.50% in July 2023. We were hoping for something more positive, but August disappointed us. Hence, it is predicted that inflation will remain above the goals set by the Bank of Namibia that have gone on a campaign of interest rate hikes to curb rising costs. However, one of the most serious repercussions resulting from marketing volatility is the threat to food security, as such a sharp increase will once again drive up the price of basic foodstuff, leaving even more Namibian food vulnerable. Driving up such inflation was the rise in the prices for items such as food and non-alcoholic beverages, alcoholic beverages, electricity, and fuel exacerbated by geopolitical tensions. We should understand that inflation hampers economic growth and development as it discourages investment and savings. The persistence of such inflation and the strength of the Bank of Namibia moves needed to quash it is also once again sharpening fears a recession is on the horizon. If the persistence is rising inflation, you can rest assured that the Bank of Namibia will act, with scale, timeously, to protect the income of Namibia. The result of continuing inflation, then, could be to deepen economic inequality, a problem that existed well before the pandemic and Russian-Ukraine.

Additionally, rising inflation is a global problem. No country is an island on its own. As the world becomes ever more multipolar and interdependent, multilateral solutions are needed to fight the risks and reap the rewards of integration. The complex interaction of trade, capital, information, and technology is leading to a new global convergence, for better and for worse. Namibia’s heavy reliance on importation has opened the economy to the global upsurge in prices experienced by most economies. A country like Namibia which heavily depends on imports will always be

vulnerable to imported inflation. Namibia imports most of its goods, resulting in high import costs coupled with high logistical costs as fuel prices surge. The resurgent inflation rate reported in August is significantly attributable to imported inflation resulting from high prices of imported inputs. High logical costs and longer delivery times further exacerbated the price pressure on imported inputs. Furthermore, we have witnessed a decline in buying new cars as Namibians opted to fix their current vehicle. When it comes to owning a car, inflation also has dinged the budget of almost every person in Namibia, regardless of how much they make, where they live, or what they do for work. Even Namibians with paid-off vehicles are seeing costs creep up.

Furthermore, even if you are not buying something new or used, your continued relationship with your car is getting more expensive. Maintenance and repair, rising faster than inflation. Insurance premiums are on the rise. The fuel is significantly resurgent and projected to increase. The cost of maintaining an older vehicle, especially one still running long after its warranty expired, is typically higher than the upkeep of a new one fresh off the lot. Therefore, faced with high repair costs, drivers might have looked for a replacement vehicle instead. But now cheap rides are extremely hard to find in the used car market.

Moreover, the International Energy Agency (IEA) estimates global oil demand to exceed supply. The historical revision shrank the outlook for the supply deficit expected later 2023 even as OPEC members further constrained supply. The imminent oil supply cuts by Saudi Arabia and Russia will create a significant supply shortfall and threaten a renewed surge in price volatility. Global oil markets face a deficit of 2 Million Barrels of Oil Per Day (MMbpd) during the second half of 2023 following announcements by the OPEC+ leaders that they will extend cutbacks to the end of the year. It’s smaller than projected last month, because of historical changes to demand estimates, but still poses risks for consumers. Hence, OPEC+ production cuts are likely to drive up oil prices and inflict more pain on consumers already squeezed by high inflation. Global oil markets were already on track for a supply deficit before Saudi Arabia and its partners unveiled the surprise curbs, forcing hefty inventory withdrawals of about 2 million barrels a day on average in the second half of the year.

Therefore, the decision of OPEC+ will affect countries including Namibia who are already affected by economic crisis. This change is a fact of life for drivers all around the world. When consumer demand for a commodity rises, the supplier will meet that demand at a higher price. Supply and demand are going to continue playing a role in the price of oil. This supply and demand are a part of the world of fuel retailers and wholesalers. Therefore, demand will exceed supply which will aid the Ministry of Mines and Energy to increase the prices of oil and gas. Russia-Ukraine geopolitical tensions are now threatening to further disrupt energy supplies, with the potential to push price increases higher and shift monetary and fiscal policy. The Bank of Namibia will take a pro-cyclical

stance and hike interest rates by 25 basis points on the 25 October 2023. Geopolitical tensions are also threatening to drive up energy prices and drag headline inflation. High energy prices and limited supply will make our economy especially vulnerable to any additional energy shocks, exacerbating the repercussions of current geopolitical tensions. Therefore, sanctions on Russia will shake the world economy for years. We are now facing an environment of significantly higher commodity prices, which could persist for longer than many would anticipate. It will raise inflation and reduce economic growth, posing an extremely challenging problem for policymakers.

To that end, resurgent Namibia Consumer Prices will feedback loop, driving prices higher. It’s a concern because when you’re battling inflation on multiple fronts it’s not just the supply chain, it’s not just labour unrest, but now consumers are also part of the dynamic, making it even more difficult to bring inflation under control.

Namibians, and the economy, have been through a lot, the extreme and uneven economic effects of the technical recession and now, persistently high inflation.

Essentially it is very difficult time for many people all over Namibia to walk this tightrope.