Monitoring demand driven inflation

The amount of money circulating in the economy influences inflation. According to Bank of Namibia (BoN) annual report, the total value of notes and coins that circulated in the economy in 2022 stood at N$4.8 billion compared to N$4.7 billion in 2021, an increase of 2.4%.The value of notes in circulation stood at N$4.6 billion in 2022 compared to N$4.5 billion in 2021. Coins in circulation during 2022 were value at N$267.9 million in 2022, relative N$257.9 million in the previous year. The Agricultural Bank of Namibia (Agribank) noted that although the Bank of Namibia monetary policy committee (MPC) does not directly aim to control inflation but to maintain the one-to-one peg with South Africa, it indirectly controls inflation through controlling the demand through the availability of money in circulation.Namibia imports most of its inflation and due to the persistent rise in inflation in both South Africa and in Namibia, the Central Banks now find themselves at a crossroad where economic prospects have weakened while inflation is not yet fully under control and fiscal challenges remain. Overtightening of monetary policy would drive the economy into unnecessary harsh slowdown resulting from the increase in the cost of borrowing which stifles both business and individuals’ confidence. It is becoming extremely difficult to obtain affordable funding, particularly for Agribank to on- lend to the Agriculture Sector at affordable rates. This effectively undermines the Bank’s ability to perform on its mandate of socio-economic transformation, Agribank said.With the repo rate standing at 7% and the prime lending rate at 10.75%, analysts expect the Bank of Namibia to hike interest rates further today.According to the Namibia Statistics Agency (NSA), Namibia’s annual inflation rate averaged 7.1% in the first three months of 2023, compared an average of 4.5% recorded in the first quarter of 2022, an increase of 2.6 percentage points, according to the Namibia Statistics Agency (NSA).March 2023 registered an annual inflation rate of 7.2%, the same rate recorded the previous month. In March 2022, inflation came in at 4.5%. The Bank of Namibia expects inflation to average 5.3% in 2023. OutlookAccording to IJG Securities, “March’s sticky inflation print of 7.2% comes as a surprise given that we expected some easing like we have seen from recent Consumer Price Index (CPI) prints in other parts of the world. This means that the much-anticipated disinflationary cycle has yet to come into effect, setting the stage for a prolonged restrictive monetary policy stance.”In addition, Simonis Storm said: “With the latest inflation print not moving closer to 6%, we anticipate the central bank to hike the repo rate by 25 basis points. During the last Monetary Policy Committee (MPC) dialogue, the Bank of Namibia (BoN) Governor Johannes!Gawaxab acknowledged that not all members agreed on a rate hike, but their views were outnumbered. Therefore, we expect that the bank will not take an overly aggressive approach. Nonetheless, local interest rate hikes will continue to be implemented until inflation shows signs of moving closer to 6%.”Moreover, PSG’s outlook for transport inflation has worsened slightly, owing to the recent rally in the global oil price following the surprise announcement of oil output cuts by Opec earlier this month. “We now project an average benchmark Brent crude spot price of US$86.90 per barrel in 2023 versus US$85.10 per barrel a month ago. Nevertheless, we anticipate that transport price inflation will ease throughout the 2023 thanks to base effects and as the global oil price will be constrained by weaker global economic activity during this period. Similarly, we think that food price inflation will peak in the second quarter of 2023 before subsiding during the rest of the year. The elevated global maize price and recent Namibian dollar weakness have caused high food price inflation to persist. Based on the above factors, coupled with weaker domestic demand and higher interest rates, we forecast the average inflation rate to moderate to 5.7% this year from 6.1% in 2022,” PSG said.US Fin24 recently reported that the US economy continued to churn out jobs at a brisk pace in March, pushing the unemployment rate down to 3.5%, signs of persistent labour market tightness that could see the Federal Reserve hiking interest rates again next month.Nonfarm payrolls increased by 236 000 jobs last month, the Labour Department said in its closely watched employment report. Data for February was revised higher to show 326,000 jobs were added instead of 311 000 as previously reported.The unemployment rate fell to 3.5% from 3.6% in February. Average hourly earnings rose 0.3% in March after gaining 0.2% in February. That lowered the annual increase in wages to 4.2% from 4.6% in February, which was still too high to be consistent with the Fed's 2% inflation target. Fed officials will now await inflation data later this month to gauge the impact of their year-long monetary policy tightening campaign.Financial markets were leaning toward the U.S. central bank increasing rates by another 25 basis points at the May 2-3 policy meeting, according to CME Group's FedWatch tool.The Fed last month raised its benchmark overnight interest rate by a quarter of a percentage point, but indicated it was on the verge of pausing further rate hikes in a nod to financial market stress. It has hiked its policy rate by 475 basis points since last March from the near-zero level to the current 4.75%-5.00% range.South AfricaMeanwhile, Fin24 further reported that South Africa’s central bank has the freedom to adjust monetary policy without having to follow the Federal Reserve’s interest-rate hikes because the effects of the US institution’s moves feed into the exchange rate and domestic inflation, which the Reserve Bank targets, its chief said. "The Fed affects us because their actions tighten global financial conditions, and that in the main leads to a realignment of exchange rates, including the South African rand. Depending on what has happened to the movement in the rand — which feeds through into inflation — that is our reaction function," Governor Lesetja Kganyago said. "We do not try and follow what the Fed is doing with respect to interest rates." Kganyago spoke in an interview with Bloomberg Television from Washington, where he’s attending International Monetary Fund and World Bank meetings.The South African Reserve Bank surprised financial markets in March when it raised the benchmark repurchase rate by a bigger-than-expected 50 basis points. That was an attempt to entrench price-growth expectations close to the 4.5% midpoint of its inflation-target range. Average inflation expectations for the year — as measured by a survey of analysts, business people, labor unions and households — rose to 6.3% in the first quarter. That’s as persistent power outages, logistic-network constraints and currency weakness stoke price growth in Africa’s most industrialized economy.-phillep@nmh.com.na

Monitoring demand driven inflation

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Republikein 2026-06-23

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Monitoring demand driven inflation

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