By Josef Kefas Sheehama
Despite a drop in fuel prices, inflation remained uncomfortably high in August, as prices for a wide range of other goods and services rose. In August 2022, Namibia’s annual inflation rate increased by 7.30%. The drop in fuel prices is notable, but it does not address the underlying issue of inflation.
The most likely outlook remains a continuation along the current path of economic stagnation and slows the deterioration of Namibia’s prolonged financial crisis. This means that the Bank of Namibia will respond to any changes. I strongly believe that the Monetary Policy Committee of the Bank of Namibia will increase the repurchase rate by 0.50 basis points to 6% from 5.50% on 26 October 2022. I anticipated that MPC will hike the interest rate by another 0.50% bps by the end-2022. Furthermore, I expect that inflation will probably peak around 8.00% in October and then slightly scale down near the end of 2022. However, one of the most serious repercussions resulting from such a heavy interest rate increase is the threat to food security. Such a sharp increase will once again drive up the price of basic foodstuff, leaving even more Namibians’ food vulnerable. Driving up such inflation was the rise in the prices for items such as electricity, and fuel remain high, and food and transport were exacerbated by the Russia-Ukraine war. To policymakers, inflation hampers economic growth and development as it discourages investment and savings. The persistence of such high inflation and the strength of the Bank of Namibia moves needed to quash it are also once again sharpening fears a recession is on the horizon.
As the cost of living rises, a glance at your electricity units could send you into a tailspin. The cost of living is rising, adding to the economic uncertainty at the end of a turbulent two years. If inflation continues to increase, you can be confident that the Bank of Namibia will act swiftly and decisively to protect Namibia’s income. Continued inflation could exacerbate economic inequality, a problem before the pandemic and the Russian-Ukraine war. Growing economic inequality has been a serious and long-term problem.
Furthermore, the increase in prices is much greater than the increase in average earnings. Inflation has an impact on people’s household income. I’m sure they’re already feeling it in terms of rising prices. Employers are unlikely to compensate their employees for this extra and may limit pay increases. Furthermore, rising inflation reduces the purchasing power of your hard-earned money. As a result, it’s critical to ensure that your money is working hard for you. However, it is currently nearly impossible to find a savings account that will outperform inflation. Everyone will be hit, and everyone will feel a lot of pressure. If nothing changes, it will feel like a disaster for lower-income households.
Furthermore, the current account balance appears to be an enigmatic economic perception. The approval to import non-commercial vehicles with age restrictions of up to twelve (12) years has two effects. Different industries will be impacted differently, which will determine how company prices will be affected. Namibians will most likely have to pay more for loans this year. Tightening monetary policy raises borrowing costs for consumers and businesses, reducing demand and lowering prices. However, as the Bank of Namibia continues to normalize policy over the remainder of 2022, it may put a strain on people’s budgets.
Money will become more costly. The Bank of Namibia has realized that having so much cheap money available is causing a large number of consumers to spend. Excessive money supply expansion can also result in demand-pull inflation. Credit, loans, and mortgages are all part of the money supply. When the money supply expands, the value of the dollar falls. Import prices rise when the dollar falls in value relative to other currencies.
If the ruling is not challenged, it will not only disrupt the industry but will also stifle economic recovery, given the current threat to the country’s economy. Throughout 2022, the entire country will feel squeezed. In addition, if inflation becomes too high, the government may adopt a contractionary fiscal policy. These policies, such as raising interest rates and increasing the cost of borrowing, have the potential to slow economic activity and lower standard prices. As a result, businesses will face even higher costs, while households will face a significant increase in their cost of living.
To that end, when inflation rises, everyone feels the pinch, and the pressure on the Bank of Namibia to manage inflation rates has grown exponentially. This could generate its feedback loop, driving up prices.
It’s a concern because when you’re fighting inflation on multiple fronts, it’s not just the supply chain, it’s not just labour market shortages, it’s not just the Russia/Ukraine war, but now you’ve got the consumer in the mix, which just adds to the difficulty of getting inflation under control.
As a result, inflation is defined as a sustained increase in the general price level of goods and services in an economy over time. Interest rates represent the cost of money. It is reasonable to expect that as the price of money rises, so will the price of goods.