High food, fuel prices push inflation to five-year high

CBK Governor Patrick Njoroge. [David Gichuru, Standard]

Kenyans will have to dig deeper into their pockets to afford basic commodities as the inflation rate hit a new high in August.

Data released by Kenya National Bureau of Statistics (KNBS) Wednesday, August 31, indicates that overall inflation rose from 8.3 per cent in July to 8.5 per cent for the month of August, the highest since June 2017.

KNBS said the higher inflation was mainly due to an increase in the prices of commodities, with the food and non-alcoholic beverages index rising 15.3 per cent, the transport index going up 7.6 per cent and housing, water, electricity, gas and other fuels index rising by 5.6 per cent.

"Relative to July 2022, prices of maize flour...sugar and mangoes increased by 4.7, 4.6 and 4.1 per cent in August 2022, respectively," said the government statistician in a statement.

"During the same period, prices of carrots and onions-leeks dropped by 6.4 per cent and 2.4 per cent respectively."

The latest figures come on the back of the General Election that saw politicians promise to bring down the cost of living, which has grown in recent months amidst global economic shocks and a weakening shilling.

In July, Central Bank of Kenya's Monetary Policy Committee (MPC) retained the benchmark lending rate at 7.5 per cent which, coupled with government subsidies, was to help alleviate inflationary pressure.

"The MPC assessed that the impact of its policy action is still working through the economy," CBK Governor Patrick Njoroge said during a briefing in late July.

"A change in the benchmark rate takes time to work through the economy."

Earlier this year, the government announced a raft of subsidies targeted at bringing down the cost of various commodities that have been impacted by the ongoing war in Ukraine and the strengthening of the US dollar.

These included a waiver on white maize imports, halving of value added tax on cooking gas and a subsidy on the price of maize meal to ensure a two-kilogramme packet retails at a maximum of Sh100.

A shopper at a Samrat Supermarket in Nyeri. The prices of basic commodities have sharply increased recently. [Kibata Kihu, Standard]

"The economy is expected to remain resilient in 2022 at 5.4 per cent GDP growth, which is very solid compared to other economies given the external shocks that we are still navigating through and our own internal shocks," said Dr Njoroge.

According to KNBS, an increase in the cost of beer and wines by 1.2 per cent and 0.8 per cent respectively pushed up the alcoholic beverages, tobacco and narcotics index by 0.7 per cent.

This was attributed to the implementation of new taxes through the Finance Act, 2022 that raised excise duty on beer, alcoholic spirits, fruit juice and cosmetics.

The housing, water, electricity and other fuels index rose by 0.3 per cent between July and August, which KNBS partly attributed to an increase in prices of house rent, particularly single rooms.

Furnishing, household equipment and routine household maintenance index similarly increased by 0.5 per cent compared to July, mainly attributed to an increase in prices of laundry soap and detergents that rose by 1.5 per cent and 0.7 per cent respectively.

In June, the World Bank projected that Kenya's economy would increase by 5.5 per cent this year and five per cent next year barring external uncertainties such as intensification of the Covid-19 pandemic and prolonged disruptions from the war in Ukraine.

"Prior to the war in Ukraine fertiliser prices were already increasing and, with Kenya importing all fertilisers, a further rise in prices could worsen already volatile food inflation and generate new food supply stresses," said the World Bank.

"While the baseline projections account for the downside effects of the ongoing war in Ukraine through increased commodity prices, a prolonged war and the associated sanctions, could raise commodity prices further, resulting in higher domestic inflationary pressures."