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Why prices of essential commodities are not falling anytime soon

Women hawking ripe bananas in Kakamega town on January 20, 2022. [Benjamin Sakwa, Standard]

In the last few months, Kenyans have experienced a spike in the prices of key food commodities.

According to data from Kenya National Bureau of Statistics, the inflation level which is defined as the persistent increase in the prices of essential commodities, declined steadily to about 5.3 per cent but the paradox is that the prices of essential commodities remain high.

This is due to several factors. First, a spike in food prices may be influenced by drought-induced inflation every time the country receives inadequate rainfall to sustain a good harvest.

The short rains last year were inadequate, leading to a decrease in food supply while demand remained high and thus a spike in prices. With the long rain season here, we expect drought-driven inflation to dip due to the availability of more food crops.

Second, imported inflation is a major cause of the increase in the price of essential commodities. Imported inflation occurs when the rise in the prices of imported commodities such as petroleum products leads to an overall increase in the price of general commodities.

Cost of products

This is a big challenge when it comes to stabilisation of essential commodity prices.

For instance, the spike in essential commodities prices such as cooking oil, steel bars, and wheat can be attributed to high cost of products or raw materials in the foreign markets and a weak shilling (trading at Sh116 to the dollar).

Third, the Covid-19 recovery led to an increase in demand for most essential commodities globally, raising the global inflation rate to about six per cent.

Covid disrupted the value creation and delivery systems, affecting the global supply of most commodities. With the recovery set to continue, the demand for many commodities will remain higher compared to low supply as firms move to full optimisation of the production systems.

High taxes contribute to high prices of essential commodities such as petroleum and gas products, as the State increases its revenue collection amid low output occasioned by Covid-19.

While the price of steel increased by 25 per cent globally, in Kenya it increased by 70 per cent due to cartel-like tendencies.

In conclusion, it means that the prices of essential goods will remain high until there is full recovery and stable supply of goods in the global market, good rains this year, abnormal hike in prices is controlled, the shilling becomes stable against the hard currencies and taxes are lowered especially for essential goods such as petroleum products.

The writer is an economist and innovation lecturer