by Josef Kefas Sheehama
The highest annual inflation rate recorded was 6.7% on average in June 2016 from 3.4% in April 2015 approximately. In June 2022, Namibia’s annual inflation rate increased by 6.00%, compared to 4.10% recorded in June 2021.
South African Reserve Bank is expected to hike the repo rate by 50 bps on 21 July 2022. With the Namibian economy closely linked to South Africa, the Namibian dollar is pegged one-to-one to the South African Rand. This means that the Bank of Namibia will respond to any changes effected by South Africa. I strongly believe that the Monetary Policy Committee of the Bank of Namibia will increase the repurchase rate by 0.50 basis points to 5.25% from 4.75% on 17 August 2022. I anticipated that MPC will hikes the interest rate by 175% bp by end-2022. Furthermore, I expect that inflation will probably peak around 7.50% in September 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, as 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, gas, fuel, food, and transport 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, just glancing at your electricity units could be enough to send you into a downward spiral. The cost of living is rising, creating new economic uncertainty on the tail end of a very uncertain two years. The result could be more mental strain, stress, and anxiety. In and of itself, inflation is not necessarily tied to declines in mental health. The impact on individuals depends heavily on their financial situations. For example, someone deeply in debt can benefit from inflation because each dollar they have to pay back is worth less, effectively shrinking their debt. But if that person’s income doesn’t rise along with inflation, they may end up in worse financial shape. The result of continuing inflation, then, could be to deepen economic inequality, a problem that existed well before the pandemic and the Russian-Ukraine war. Growing economic inequality has been a significant and long-term issue. And we now live in a world where the external shocks have made some people wealthier than they already were, but people who are at the bottom, have never been more insecure.
Furthermore, this rise in prices is considerably higher than the increase in average earnings. Inflation is something that bites people’s household income. I’m sure they’re already feeling that in terms of prices that are going up. Employers are unlikely to compensate their staff for this extra and might well limit pay rises. Additionally, as inflation rises, it erodes the spending power of your hard-earned cash. So it’s important to make sure your money is working hard for you. But it’s almost impossible to find a savings account to beat inflation at the moment. Everyone’s going to be hit, and it will feel like a big squeeze for everybody. It’s going to feel like a catastrophe for lower-income households if nothing changes.
Moreover, the approval to import age restrictions for non-commercial vehicles up to twelve (12) years constitutes dual effects. Different sectors will be impacted differently and will be the determining factor in how company prices will be affected. Namibians are likely to find themselves paying more for loans this year. Tightening monetary policy raises the costs of borrowing for consumers and businesses, weakening demand and curbing prices. But it could also pinch people’s budgets as the Bank of Namibia continues to normalize policy over the rest of 2022. Money will become more expensive. The Bank of Namibia is realizing that having so much cheap money available, is causing a lot of consumers to spend. Over-expansion of the money supply can also create demand-pull inflation. The money supply is not just cash, but also credit, loans, and mortgages. When the money supply expands, it lowers the value of the dollar. When the dollar declines relative to the value of foreign currencies, the prices of imports rise.
The ruling, if left uncontested, will not only disrupt the industry but will further suppress economic recovery, considering the current threat the country’s economy is facing. The whole country is going to feel squeezed throughout 2022. Also, when inflation gets too hot, the government might shift toward a contractionary fiscal policy. These measures, such as hiking interest rates and increasing the cost of borrowing, could slow economic activity and depress standard prices. The result will be even higher costs for businesses and a deep squeeze in the cost of living for households.
To this end, on top of that is whether the spike already seen in inflation will scare Namibia households into speeding up purchases to get ahead of any further price increases. That could create a feedback loop, driving prices higher.
It’s a concern because when you’re battling inflation on multiple fronts it’s not just the supply chain, it’s not just the labor market shortages, it is not just the Russia/Ukraine war, but now you’ve got the consumer who’s in the blend, it just increases the difficulty in bringing inflation under control.
Therefore, Inflation is a sustained increase in the general price level of goods and services in an economy over some time Interest rates are the price of money. It is logical to assume that if the price of money increases then the prices of goods will increase.
