Low income earners hit hard as commodity prices rise sharply

Consumer Insight Africa study shows that while only a half of the people interviewed reported a rise in income, more than 80 per cent said their spending had gone up.

If there is one thing that a vast majority of Kenyans seem to agree on, it’s that their earnings are not growing fast enough to match the amount that they are spending.

This could be a result of a general rise in the cost of living as well as warped up priorities where Kenyans are increasingly spending on costly, but non-essential goods.

A new survey shows that while earnings among many Kenyans have grown by slight margins or stagnated, almost all of them agree that their spending on essentials has grown by huge margins.

The disconnect between the rate at which earnings and spending patterns is growing has pushed many to debt just to manage their household budgets.

The study by research firm Consumer Insight Africa, shows that while only a half of the people interviewed for the survey reported a rise in income, more than 80 per cent said their spending had gone up.

“Fifty six per cent of shoppers said they were earning more than the previous year, but a higher 83 per cent said they were spending more than the previous year. All which means prices were out-running budgets,” said the Consumer Insight study.

A minority of the respondents, however, said they were able to sustain their personal expenditure at the same levels as last year.

This could be a pointer to some major cutting down on cost at a personal level. “Curiously, at least 16 per cent were able to spend the same (or less) despite this price increase,” said Consumer Insight.

Spending on non-essentials is also a factor that might have resulted a spike in spending.

A Standard Chartered Bank Aspirations study that covers Kenya and four other countries noted that Kenyans are increasingly buying technology devices, clothing and other luxurious items.

Dim the ambitious

The situation where Kenyans will continue to spend more is not likely to ease up and if anything, all pointers are that it might get worse.

When he delivered 2014/15 Budget statement a week ago, Cabinet Secretary National Treasury Henry Rotich, conceded to the high cost of living. He, however, did not make major pronouncements on measures being undertaken that would mean a reprieve for Kenyans any time soon.

He, however, said there are plans to increase food production, particularly through the planned Galana’s million acre irrigation project, which would play a critical role in ensuring food security. Notable, however, is that, though the Galana farm in Kwale was allocated money in the last budget and even officially launched with much fanfare, with the initial harvests expected early in the second half of this year, nothing much has been done at the farm.

“Increased food supply will drive down food prices and lower the cost of living for every Kenyan. In addition, the expansion of agro-processing will foster export growth and support other sectors such as manufacturing and tourism,” he said.

Consumer Federation of Kenya (Cofek) sees a situation where the cost of living will likely to go up in coming months. In particular, the consumer lobby notes that the cost of borrowing is likely to go up, as a huge budget deficit makes borrowing locally inevitable.

“Raising in excess of Sh300 billion deficit and how the ambitious budget will be funded can only mean more domestic borrowing, high cost of credit and inflation, issues that will combine to dim the ambitious GDP growth,” said Cofek in a post budget brief.

Cofek said although regulations to clarify the VAT Act are ready, the challenges of unresolved VAT and its spiral effect on basic consumer price structures and index will persist.