Consumers take a beating as commodity prices soar

By John Oyuke

The rise in food prices has led to increased inflation, sending signals that life is set to get difficult.

Data from the Kenya National Bureau of Statistics (KNBS) indicate that headline inflation jumped to 6.54 per cent last month from 5.42 per cent in January, surpassing the Central Bank of Kenya’s own target of keeping the cost of living measure at below five per cent.

The price rise that affected maize flour, sukuma wiki, spinach, maize grain, wheat flour, cabbages, fish, fresh milk, margarine and refined oil is likely to make life expensive for most households.

Kenyans continued to spend more on commodities as the consumer price index (CPI), which measures changes in the price level of consumer goods and services purchased by households, increased by 1.34 per cent from 110.57 in January to 112.05 in February.

Food and non-alcoholic drinks’ index went up by 1.74 per cent between the months of January and February 2011 driven by cost increases of basic food products used by a large section of Kenyans.

The prices of these items were marked by a jump of 8.8 per cent for maize flour, sukuma wiki, 12.4 per cent, spinach, 14.8 per cent, maize grain, 6.7 per cent and cabbages, 4.8 per cent.

Similarly, transport index rose by 4.36 per cent, mainly due to increased costs of petrol diesel and bus/matatu fares.

The prices of these items, often with ripple effect, went up by 2.7 per cent for petrol diesel (4.6 per cent) and bus/matatu fares (1.9 per cent) respectively between the months of January and February.

Housing, water, electricity, and gas index went up by 0.8 per cent between the two months mainly on account of increases in the prices of electricity and housing costs.

The main contributor to higher cost of electricity was the amount charged to offset fuel cost adjustments, which increased from Sh3.82 per Kwh in January to Sh4.67 per Kwh in February.

In fact, within the review period, the only decline (1.29 per cent) was in the communications index mainly due to the continued fall in the prices of telephone handsets and reducing call rates.

Following these increases, for instance, in most supermarkets ,in Nairobi and across the country, three litres of cooking oil now costs Sh505, up from about Sh370 less than six months ago while five litres of oil such as Elianto, which have a strong presence in several kitchens goes up to Sh950.

Other commodities whose prices have gone up are wheat flour, which costs Sh127 for a 2kg packet, up from Sh101, a packet of milk for Sh32 up from Sh28 as well as maize flour between Sh78 and Sh93 up from Sh65 for a 2-kg packet during the same period of time.

Harvest season

According to the officer in charge of data at KNBS, Mr Nyongesa Wekesa, the country is yet to see the full extent of the price increases.

"The shortage of rain will push up the prices of most household consumables even further," he said, signalling maize flour as one of the commodities whose price may not come down soon.

"We are likely to suffer the crisis of high (flour) prices until the next harvest season," he said.

This rising inflation, which increased for the fourth consecutive month from 3.18 per cent last October is, however, eliciting varied views from government, private sector and even analysts who are warning of tough life not only for consumers but also manufacturers.

Treasury PS Joseph Kinyua appeared unperturbed last week, saying the Ministry is comfortable with the current inflation rate despite the rise over the past four months.

He said the current inflationary pressure in the country is coming from a sharp increase in food prices while other key economic sectors are still showing signs of stability.

"If you net out the food items, you find that inflation is within expected range in terms of the good monetary policy that we are perusing as a government," he said.

The food index at 36.04 per cent accounts for the largest segment of the Consumer Price Index (CPI), a rate of changes in price level of consumer goods and services purchased by households.

On suggestions that the government check rising consumer prices by removing duty on imported goods and food items, Kinyua said it was still early to do this but hastened to add that Treasury would monitor the situation before making a concrete decision.

He, however, said if it is a question of shortage of commodities, the Government could intervene by removing duty on imported goods and food items to cushion consumers.

Kenya Association of Manufacturers (Kam) Chief Executive, Betty Maina had suggestion while urging Government to act firmly to contain the rising inflation and prices.

Central Bank’s Monetary Policy Committee (MPC) also echoed the views of the PS. Earlier this year, MPC said prevailing inflation is not a risk to Kenya’s growth agenda.

Central Bank Governor, Prof Njuguna Ndung’u said it was the feeling of the committee that the overall inflation of 4.5 per cent for December 2010 was below the target of five per cent and there were no foreseen upside risks to inflation in the near term.

benchmark interest

"Most of the enduring pressures are related to dry weather and oil prices while others are one-off price adjustments like rent," Ndung’u said after an MPC meeting in January.

The remarks explained decision by CBK to cut its benchmark interest rate by a quarter of a percentage point to a record low of 5.75 per cent in January 27, which caught many analysts off guard.

A number of analysts have, however, remained sceptical with the way CBK treats inflation, arguing the bank is underestimating the pressure on prices, which could lead to cut on spending and deny manufacturers demand they need to boost production.

Ms Dipna Shah, an investment analyst with Pinebridge Investments says while inflation has remained benign, the trends point toward an upward bias from hereon.

She said inflation rate might accelerate up to as much as 7 per cent if the current drought persists.

Renaissance Capital, a leading investment bank focused exclusively on emerging markets, shares similar forecast and explains the country’s inflation rate is expected to increase in 2011 on the back of rising food price pressures, though it would remain in single digits.

Non-food inflation is also at risk of increasing in 2011 on the back of higher commodity prices, particularly due to cost of oil, according to the Renaissance Capital’s Kenya 2011 outlook.