September 23, 2024
Economy

Oil mayhem: Rising inflation warning for Namibia

March 16, 2022
Oil mayhem: Rising inflation warning for Namibia

Namibia’s annual inflation outlook for 2022 has been revised upwards to an average of 5% from the initial estimate of 4.7% due to rising global oil prices triggered by the ongoing Ukraine, Russia conflict, with price hikes forecasted.

The Brief compiled analysts’ revised predictions for inflation, interest rate and GPD projection for 2022:

Simonis Storm Economist Theo Klein

Klein forecasts inflation to surpass initial forecast of 4.7% for 2022 to a high of between 6-7% depending on the increase in global oil prices.

“While we have not updated our forecast as yet, we could most likely see inflation rates between 6% and 7%. Rising oil prices is the tide that lifts all boats. Any product that is transported to Namibia via trucks will see a rise in prices and includes clothing, furniture, cars, electronics and alcohol amongst other,” he said

On interest rate hikes for 2022, Klein maintained his forecast of 125bps for the year.

“Raising interest rates in response to supply side factors is not effective as interest rates only influence demand side inflation (people spending too much and prices rise as a result of overheating). However, we do expect the South African Reserve Bank to continue hiking their repo rate due to managing inflation expectations and to try and limit capital outflows to a small extent. A weaker Rand in itself is inflationary and by raising rates, you try to prevent a significantly weaker Rand. We maintain our 125bps hike in the Namibian repo rate by the end of 2022,” he said.

On growth projection 2022, he said, “We have not adjusted our growth forecasts yet.” Simonis Storm is forecasting 2.5% growth rate for 2022. 

Ruusa Nandago, Group Economist FNB

Nandago expects inflation to edge closer to the 5% mark from initial estimates of 4.3%, with price hikes forecasted, citing the increase in international oil prices.

“Despite the February print moderating slightly, we expect the upward trend in inflation to continue, especially as oil prices have now surpassed the US$100/bbl mark owing to Russia-Ukraine tensions. We also expect strong spillover effects from higher fuel prices into goods inflation, as 69% of Namibian imports are transported via road. We believe that the capacity for businesses to absorb these cost pressures has diminished significantly due to the constrained economic environment,” she said in the RMB Africa Market report.

On 2022 growth projects, she said the bank’s growth forecast for the year remained unchanged at 3%.

“Our growth forecasts remain unchanged for now given that trade with Russia and/or Ukraine constitutes less than 1% of total trade. The risks are, however, tilted to the downside as higher inflation rates will reduce purchasing power in the economy which could limit the extent of consumption growth,” Nandago said.

She, however, expects more repo rate hikes from the Bank of Namibia than previous estimates of interest rates to end the year at 4.50%, 75bp higher than current levels.

“At the moment we have not incorporated more hikes. However, this again depends on how long the Russia-Ukraine tensions persist and the SARB’s view on SA inflation. Should the SARB observe that inflation remains elevated at near the 6% mark for an extended period, we could expect more hikes than initially forecasted which would then filter through to Namibia in order to maintain the peg,” the FNB Group Economist said.

Shelly Louw, Research Analyst PSG Namibia

Louw is forecasting higher global oil prices to feed through into higher transport inflation and prices of food and other consumable goods.

“Our inflation estimates of 4.7% average in 2022 will be revised higher based on higher oil prices. As we expect that inflation is likely to be higher in 2022 than our most recent forecast, there is upside risk to our interest rate forecasts as well, she said adding PSG Namibia is currently forecasting 3 more interest rate hikes for Namibia in 2022 of 25 basis points each.

“Further large fuel price adjustments are probable in April. As a result of these fuel price hikes,transport price inflation will likely remain near double digits throughout most of the year. Additionally, the prices of wheat, maize and fertilisers have also surged in the wake of the Russian invasion, which will exert upward pressure on food price inflation. Due to these developments, we will adjust our current 2022 average inflation forecast of 4.7% higher in the next forecast round.”

Louw said PSG Namibia growth forecast for 2022 at 4.2%, attributed to new mining activities and heightened commodity prices, increased investment in the energy sector and reduced pandemic-related restrictions.

“Namibia imports significant quantities of wheat and fertilisers from Russia, however, total imports from Russia accounts for less than 1% of Namibia’s total imports. Namibia exports a fairly small share of its diamonds to the same country – there is no other trade worth mentioning. If needed, Russian imports of wheat and fertilisers could probably be sourced from South Africa. The main impact of the war will probably be through higher global oil and food prices, which will raise domestic headline inflation beyond our current forecast of 4.7% in 2022, possibly to 5.0% or higher. Due to the Russia-Ukraine war, we recently raised our 2022 average oil price forecast. The increase in inflation this year, together with the expected monetary policy tightening will inhibit the growth recovery and likely lead us to lower our GDP growth forecast,” the PSG Namibia Analyst said. 

Danie van Wyk, Head: Research IJG

Van Wyk expects the inflation rate to probably push up towards the higher end of our inflation forecast range for the year.

IJG forecasts inflation to average between 3.4% and 5.0% in 2022, “Although the upper end of the range seems more likely at this stage as risks remain tilted to the upside.”

The IJG Head: Research still expects BoN and South African Reserve Bank (SARB) to increase rates three to five times this year.

“If the SARB and the BoN expect the higher input costs to be passed on to consumers in the form of higher prices charged for goods and services (called second-round effects), it could prompt them to raise rates at a quicker rate than initially anticipated. Our forecast is still for the two central banks to increase rates three to five times this year. However, we don’t think a sudden sharp increase is on the cards just yet. The higher inflation rate is currently being pushed up by supply side factors. Thus, even if central banks hike interest rates, it will do very little (especially in the short-term) to tame oil/fuel prices, due to the oil price very much being driven by fear at this stage rather than increased demand from consumers.”

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Last modified on Friday, 18 March 2022 18:58
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