By Odhiambo Ocholla

Despite the rate of inflation dropping by 100 basis points to 15.61 per cent last month, there is no reprieve for consumers as the cost of living remains high.

The squeeze on cash-strapped households is not easing any time soon despite successive drop of inflation from a high of 20 per cent recorded last year.

What makes this latest inflation figures irrelevant to the common man on the street is that the price of food — sukuma wiki, milk, potatoes, onions and tomatoes — which constitute 90 per cent of their household’s budget rose by 2.4 per cent.

In fact consumers are much worse compared to the same period last year, as statistics indicates that food prices have increased by 20.3 per cent last month.

To the common man the "true" cost of living has not yet changed, infact it is even worse. No wonder consumers have been struggling with high cost of living despite successive drop on inflation.

During the past year, most essential bills have ballooned. Despite the small fall in the inflation rate, there is little respite for hard-pressed families.

severe pressure

The problem is compounded by wages, which still lag behind cost of living as families still face ‘severe pressure’. Yes inflation fell last month but millions of families are still under severe pressure as pay rises remain below the increasing cost of living.

The pressure on families struggling to make ends meet has not eased off because while the inflation rate may be falling, the average pay for workers is also dropping as increase in wages is not commensurate with inflation increase.

At this level, the average worker’s pay hike, with many not getting one at all is less than half the increase in the cost of living. It is clear that household finances remain under severe pressure.

To make matters worse, many workers, particularly in the public sector, are being hit by a pay freeze, which means they can’t cushion rising household bills.

Overall inflation might be dropping but prices are still rising. So how does this help? The damage has already been done and unless wages start to rise we are all still worse off.

Meanwhile, retailers and many service providers remain under pressure to price good and services competitively.

Whenever you hear the latest inflation update on the news, chances are that interest rates are mentioned in the same breath. Interest rates direction are decided by Central Bank Monetary Policy Committee and during its meetings, the Consumer Price Index (CPI) is a significant factor making decisions.

Bear in mind that while inflation is a major issue, it is not the only factor informing the CBK’s decisions on interest rates.

The fall in inflation did not persuade the Central Bank committee to lower the interest rates. The committee maintained its policy rate at 18 per cent to ensure that inflation continues to decline towards the government target.

eroding the value

The Government’s target for inflation is nine per cent, but the CPI index has not been close to that level in recent times.

Inflation is still eroding the value of fixed pensions and savings. For savers and especially people living on salary, the misery continues, with many commercial banks failing to offer savings accounts which beat the inflation rate.

The average commercial bank saving rate is 1.69 per cent while deposit rate is at 8.01 per cent. We have to take into account the chunk inflation has taken out of your return.

As an investor, you must look at your real rate of return. Unfortunately, investors often look only at the nominal return and forget about their purchasing power.

Ocholla is an investment banker.

Email: nyabolla@gmail.com