Namibia’s inflation surged to 7.1 percent in May from 6.9 percent the previous month stoked by rising prices of crude oil and food amidst indications that the central bank would again raise its main bank rate in August.
The Bank of Namibia (BoN) Monday warned that rising food prices in the face of looming drought and transport costs are fuelling inflation.
Inflation has been rising since January 2006 averaging 6.1 percent in the first quarter of 2007 against 4 percent during the corresponding period in 2006.
BoN’s director of research, John Steyttler, said food inflation rose to 9.7 percent in first quarter of 2007 against 4.8 percent in the first quarter of 2006.
Steyttler said downside risks to inflation include the volatile exchange rate and expected increases in administered prices of water, electricity and dairy products.
“There have been also signs of the second round effects of food and oil price inflation, evidenced by the upward trend in the inflation of other categories in the consumer price index basket (CPI),” Steyttler said.
The Namibian dollar, which is pegged one-to-one to the South African Rand lost nearly 10 percent of its value against the US dollar in 2006, but has been largely firm so far this year.
The currency has weakened only about 0.75 percent of Monday. Exporters, however, argue that the strength erodes the competitiveness of local producers.
“It is feared that this will have a negative effect on the overall level of inflation,” Steyttler said.
Despite the inflation jitters, Namibia’s overall economic performance remains strong, the bank said.
“Performance of the economy continues to remain satisfactory….there are, however, downside inflationary outlook risks emanating from high and volatile international oil prices as well as domestic food prices,” Steyttler said.
Market analysts yesterday pointed out that the bank is likely to raise its key repo rate next month.
The BoN raised its key repo interest by 50 basis points to 9.5 percent early June warning that the inflation outlook was further deteriorating.
Commercial banks followed suit and adjusted base lending rates to 13.75 percent.