Sharp rise in food, fuel prices pushing Kenyans to the edge

By Jackson Okoth

This year is turning out to be one many Kenyans would love to forget in a hurry.

This is because most consumers are being forced to dig deeper into their pockets to put food on the table, light their homes, travel, pay rent, and cater for such expenses as education, healthcare, and other household essentials. The prices of these items have increased astronomically, since the beginning of the year, making life more expensive for many households.

And it seems their agony won’t go away soon. For instance, this month has seen as a steep rise in the prices of such food items such as maize, beef, bread, potatoes, chicken, wheat flour, and sugar.

The cost of living (inflation) has been on an upward trend for the last 13 months.

Contributing the most to an expensive lifestyle for many has been increases in the price of petrol, diesel, and public transport, pushing most Kenyans closer or below the poverty line – a dollar a day or Sh90.

Figures released on Tuesday by the Kenya National Bureau of Statistics (KNBS) show that inflation for this month hit 19.72 per cent, an increase from 18.91 per cent last month.

The cost of living has gone up six times since November last year, when it stood at 3.84 per cent. In January, inflation was at 5.42 per cent.

Although the cost of living index, which measures the general rise in prices of goods and services, is still increasing, the rate is on a slowdown. This has been attributed to improved weather conditions and policy actions from the Central Bank of Kenya (CBK).

"We are experiencing good rainfall across the country and this is improving supply of food. If the current rains continue into January and February next year, food prices would drop further, easing off pressure on general price levels," said George Bodo, an analyst at ApexAfrica Capital.

Expectations are that a strengthening shilling – now hovering at around Sh90 from Sh107 two months ago – could lower fuel prices as import costs go down. However, these hopes could be dashed if fuel retailers pass on their financing costs to consumers, as suggested recently by the energy regulatory commission. This means high fuel prices will continue to exert pressure on the cost of living.

A continued rise in inflation is piling pressure on commercial banks to increase interest rates paid on deposits, to safeguard savers.

At the moment, customers’ deposits lying with commercial banks continue to lose value, as prices of goods and services skyrocket. While banks are charging as high as 24 per cent for loans, the rate paid for deposits is less than 10 per cent in most banks.

While transport costs are on the rise, owing to increases in the price of fuel, an improvement in food supply items and therefore reduction in prices. "We expect an oversupply of food items to counter effects of a rise in the transport costs," said Bodo.

In November, the transport index increased by 2.19 per cent from the previous month. This is due to continued increases in the costs of petrol, diesel, and fare.

The average prices of petrol and diesel per litre have gone up by 29.44 and 27.07 per cent, compared to the same month last year.

The price of food items and non-alcoholic drinks’ went up by 1.35 per cent between October and this month, as a result of price increases observed in respect of a number of food products such as beef, bread, potatoes, chicken, wheat flour, and sugar.

The average price of a kilo of beef with bones, for instance rose from Sh299.56 in October to Sh309.85 this month.

Analysts expect prices of food to fall in the coming months if the current short rains continue, easing supply-side constraints.

The price of housing, electricity, gas and other fuels went up by 1.55 per cent during the period under review. This rise is attributed to continued increases in the cost of electricity, house rents, and cooking fuels.

Although higher fuel adjustment charges continued to push the cost of electricity upwards, there was a decline in the Forex adjustment charge per KWh from Sh2.74 in October to Sh2.62, this month.

The cost of cooking gas, kerosene and charcoal went up by 7.01, 5.40 and 4.33 per cent, between October and this month.

Figures showing a somewhat marginal increase in the cost of living for this month are filtering out as Central Bank Monetary Policy Committee (MPC) prepares to meet tomorrow to review its policy actions.

All eyes will be on this meeting with expectations that the committee could raise the Central Bank Rate (CBR) further from the current 16.5 per cent.

The main motivating factor for any increases in the CBR would be to tame inflation. The other scenario would be for CBK to maintain the CBR to ease pressure on borrowers who are literally paying through their noses for bank credit.

In its November 1 meeting, CBK’s Monetary Policy Committee raised the CBR rate by 550 basis points to 16.5 per cent, and the Cash Reserve Ratio by 50 basis points to 5.25 per cent. The new CRR will be effective from December 15.

Panic selling of shares

"We do not expect the committee to increase the CBR and instead maintain it at current levels. The November inflation figures are in the direction that we expected them to go, with energy costs as the main driver," said Edward Gitahi, an analyst at PineBridge Investments.

CBK adjusted the CBR rate to tighten money supply and tame inflation. The effect of this policy is a rise in cost of credit, severely affecting households and businesses.

Apart from households, soaring inflation rates has also affected incomes of investors, including those with shares at the Nairobi Securities Exchange (NSE) and holders of Treasury bills and bonds. A rise in inflation and interest rates erodes the value of bonds, making its holders worse off.

While responding to a parliamentary committee investigating recent rapid depreciation of the shilling, Capital Markets Authority chief executive Stella Kilonzo disclosed that rising inflation and a weakening shilling were partly to blame for investors selling off their stock at the NSE.

She said in recent times Kenyans are liquidating investment due to the drop in their share value to survive hard economic times.

While activity at the NSE is on a downward slide, analysts are optimistic that CBK actions on the shilling appear to be bearing fruit and that it will take a while before inflation is contained.

"There is a time lag for monetary policy actions to take effect, including controlling inflation. CBK has slowed down both money supply and liquidity and it will take the next two to three months before a slowdown on inflation is apparent," said Reginald Kodzutu, an investment analyst with Amana Capital Ltd.

While there is rainfall across the country, supply constraints due to difficulty in accessing markets through impassable roads, have kept food prices up.

"A rise in the price of such items as wheat or beef is merely a supply issue and this is why their prices are rising," said Kodzutu.

Kenya’s monthly inflation figure is expected to oscillate between 19 and 20.7 per cent by the close of the year, with rising energy costs seen the main driver.