Friday 23 April 2021
  • :
  • :

Food deflation too good to be true – Economists

By Megameno Shikwambi

Economists at Simonis Storm have expressed doubt at the latest figures of food inflation released by the Namibia Statistics Agency (NSA) recently.
NSA’s latest indications are that food and non-alcoholic beverages category increased to 3.9%, the same as recorded in the prior year.
However, Simonis Storm experts are convinced the prevailing drought situation can only mean prices of basic foodstuffs are shooting up as opposed to findings by the statistics body which is to the contrary.
Said Simonis Storm, “during May 2019, the President, Dr. Hage Geingob declared a state of emergency on drought because of poor rainfall. One of the effects of a drought should be rising food prices.
According to the firm it is therefore surprising to observe a monthly deflation in the food category over the last three months.
Simonis Storm said they are of the view that the food inflation number could be too good to be true.
“We maintain our fair case inflation forecast of 4.8% with a best-case scenario of 4.5% at the end of 2019,” said Indileni Nanghonga an economist at the firm.
Namibian Statistics Agency (NSA) released the inflation numbers for June 2019 are they observations are that overall inflation increased to 3.9% year-on-year in June 2019 compared to 4.0% in the prior year.
The rise can be ascribed to a 7.0% year-on-year increase in transport inflation and a 12.0% year-on-year increase in education.
The 1.1% month-on-month increase in transport inflation was due to a rise of 2.0% month-on-month in the operation of personal transport equipment, caused by an increase in petrol and diesel prices by 30c/l during June 2019.
The purchases of vehicles recorded a deflation of 0.5% m-o-m compared to a deflation of 1.0% in the prior month.
The deflation in vehicle purchases is the resultant of massive specials and promotions by some dealerships (Ford and VW).
July saw unchanged fuel prices and if the global oil price ($66.7/bbl) remains subdued coupled with a stronger NAD (N$13.9 against the USD), transport inflation could moderate.
Housing, water, electricity, gas and other fuels recorded no monthly increase in price as the 0.4% m-o-m rise in electricity, gas and fuels was offset by a deflation in the regular maintenance and repair of the dwelling subcategory.
Furthermore, we are of the view that the upward effect of the 5% water tariff increase by the City of Windhoek in July 2019 will be offset by the 2.5% electricity tariff decrease approved by the ECB.
The housing and rental prices subcategory remained flat (monthly) since a 2.3% increase in January 2019.
Consumers remain under pressure
Meanwhile, observations made in the month of July are that borrowing through personal and commercial loans as well as credit cards is increasing rapidly.
Borrowing through personal/commercial loans and credit cards rose by 23.9% in May 2019, indicating an incessant strain on the consumer, economists have observed.
Other loans and advances (personal/commercial loans and credit cards) which usually accounts for 9% of household credit extension is currently registering 12.4%.
Further increases in its size of household credit extension could soon become unsustainable, said the experts.
Simonis Storm has said credit extended to households remains the biggest component of Private Sector Credit Extension, however, the current slow growth indicates the lack of consumer confidence in the economy.
“Meanwhile, the growth in credit extended to corporates, especially through mortgage loans, could suggest new building and construction activities in the short term.
However, the rise in overdraft facilities can be attributed to corporates trying to meet their working capital requirements in this dire economic environment,” said the firm.
According to the Bank of Namibia, Private Sector Credit Extension (PSCE) rose by 8.3% year-on-year to N$99.4bn in May this year alone.
This is the highest growth rate over the last 26 months.
The corporate sector (11.2% year on year) contributed largely to the rise in PSCE as demand for commercial property loans and other loans and advances extended to the retail sector, increased.
“Our view is that the current construction activities (flats and houses) in Windhoek have boosted the demand for commercial property loans,” said Nanghonga.
Credit extended to households, which accounts for 59% of total PSCE, increased by 6.4% year on year to N$58.4bn in May 2019.
Growth in credit extended to households has been increasing at a slower pace since 2016 and the 6.4% recorded in May remains below a 10.5% long term average.
Household borrowing is being dragged down by less borrowing through mortgage loans (6.9% year on year), instalment credit (-5.9% year on year) and overdraft facilities (3.7% year on year).

Leave a Reply

Your email address will not be published. Required fields are marked *