Price Monster Feeds On Expensive Food

Jo-Maré Duddy

20 June 2011

Persistently high food prices have caused at least one market watcher to up its year-end forecast for inflation in Namibia.

Investment House Namibia (IHN) now expects year-on-year inflation of 7,08 per cent by the end of 2011, up from 7,0 per cent previously. The firm increased its forecast after the latest data of the Central Bureau of Statistics last week showed May inflation at 5,2 per cent, up from 4,8 per cent the previous month.

Food inflation once again, was the main driver of the upsurge. It jumped from 4,4 per cent in April to 5,9 per cent a month later. A year ago, food inflation stood at 2,5 per cent.

The increase, however, didn’t convince Capricorn group economist John Steytler to adjust his inflation forecast. Steytler still expects inflation to reach a high of 7,4 per cent by year-end, and an average rate of 5,5 per cent for 2011.

IHN forecast an average of 5,2 per cent. The average for last year was 4,5 per cent.

Analysing May data, Steytler said within the food basket, the annual rate of bread and cereal inflation jumped to 9,6 per cent from 7,9 per cent one month earlier and 3,3 per cent during May 2010.

“The sharp rise in bread and cereal inflation may be attributed to tight global demand and supply conditions of wheat and maize since the second half of last year, which caused the international price of these commodities to increase sharply,” he said.

“However, Russia one of the largest international suppliers of wheat has indicated that if might lift its export ban on wheat from July if it has a favourable harvest, which would provide some relief from price pressure coming from wheat prices in the medium-term term; all else being equal,” Steytler said.

The other food component that contributed to the overall rise in food price inflation was milk, cheese and eggs, rising 4,1 per cent on an annual basis during the month of May after it had declined by 2,4 per cent on an annual basis during the previous month. On the other hand, the annual rate of inflation for meat and vegetables moderated to 5,8 per cent and 6,4 per cent in May from 6,0 per cent and 7,8 per cent during the previous month respectivehttp://allafrica.com/stories/201106080261.htmlly, Steytler said.

Transport inflation, another key driver of overall inflation moderated to 4,6 per cent on an annual basis during the month of May from 4,8 per cent during the previous mont, he said.

“Although crude oil price softened somewhat during the month of May, we are yet to feel the full impact of previous fuel hikes, hence our view of higher transport inflation during the remainder of the year remain unchanged,” he said.

Steytler said as a result of increasing inflationary pressure, the Bank of Namibia (BoN) may start pushing up interest rates as early as the fourth quarter of 2011.

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