By Jackson Okoth
Most people find it ironic that while monthly inflation figures have been dropping since January 2012, the decline in the general price levels does not appear to be reflected in the pockets of many individuals, households and businesses.
For instance, inflation rate slowed for the ninth consecutive month in August, to 6.1 per cent from 7.7 per cent in July.
However, the price of fuel has begun its upward climb, effective from last Friday midnight, pushing up cost of goods and services produced locally.
“Most people spend a lot of their money on food. Therefore, their perception around inflation is on those prices which whilst lower, have not slumped enough to make a compelling impression,” said Aly Khan Satchu, an independent financial analyst.
Figures from the Kenya National Bureau of Statistics show that prices fell by 0.3 per cent in August, a margin considered too small to have any impact on the wallet of average man on the streets.
Choices
“I used to spend Sh4,000 to cater for my household shopping expenses. This figure has now moved to Sh8,000 despite the fact that I am still a bachelor. I do not therefore feel any impact of this drop in inflation numbers,” said Antony Githendu, a marketing executive at the Kenya Institute of Management.
He added that while the price of fuel has been dropping, this trend is not been reflected in the cost of public transport. Moreover, rent is also on the rise as landlords react to Nairobi City Council’s aggressive efforts to collect, and pursuit, land rates defaulters.
There must be something wrong with this free enterprise economics. While inflation figures are dropping, we are yet to feel any big drops in food prices or transport costs,” said Tom Rongo, a tax consultant.
Figures from the statistics agency shows decreases in the prices of tomatoes, milk, potatoes, maize flour, cabbages, carrots, spinach and onions between the months of July and August. However, there was an upsurge in electricity prices pushed up by fuel cost adjustment and foreign exchange charges.
Housing, water, electricity, gas and other fuels’ index went up by 0.80 per cent between July and August. The increase resulted from significantly higher costs of electricity, house rents and some cooking fuels, despite the fall in the average prices of kerosene and cooking gas.
“Although many people may not realise it, the price of food items is down although cost of transport may have not gone down substantially. But for a company operating a fleet of vehicles, a drop in the price of fuel is felt immediately as opposed to an individual using public transport,” said Job Kihumba, a director at Standard Investment Bank.
Increase in rent
He added that while the biggest item on the basket of mostly low-income earners is food and housing, a fall in the price of food items may have been cancelled by increase in rents. While the transport index is said to have gone down by 0.82 per cent between July and August, failure by oil marketing firms to pass on this cut to consumers has meant that matatu, bus and taxi fares have remained high.
It is not only the unregulated public transport that has failed to pass on cheaper fuel prices to the public in terms of cheaper fares. Commercial banks have also been slow to cut their base lending rates in response to CBK’S policy rate cuts.
“The Central Bank did well to puncture inflationary expectations when they did but we got lucky with the rains. We are very hydrology sensitive food and energy producer. Although fuel prices were dampened as Saudi Arabia unloaded oil to keep Iran under pressure, this trend is now reversing,” said Satchu.
The sharp slowdown in inflation in recent months is attributed to the sharp tightening of monetary policy and relatively better rains that have allowed for an improvement in food production. Food prices have been falling since May when the long rains begun.
“It is all in the end about growth and jobs ... low inflation will equal a more sustainable growth trajectory and that will create jobs and effect trickled down,” said Satchu.
