High food prices pushed Q2 inflation to 5.98% - Treasury

The cost of living rose marginally in the second quarter of 2021 on high food costs brought about by a slump in agricultural production.

Kenya National Bureau of Statistics data shows inflation averaged 5.98 per cent in the first six months of the year compared to 5.31 percent in the second quarter of 2020.

"This was on account of price increase of agricultural produce due to the unfavourable weather conditions," National Treasury Cabinet Secretary Ukur Yatani said in a statement accompanying the release of the 2021 second quarter GDP report.

Generally, the agricultural sector recorded stunted growth of 0.9 percent during the quarter under review compared to 4.9 per cent in the corresponding quarter last year. 

The sector's performance was further affected by the decline in tea production from 143,037 metric tonnes in the second quarter of 2020 to 133,090 metric tonnes in the corresponding quarter of 2021.

It was however cushioned from a steeper slump by an increase in milk production, horticultural exports and sugarcane production.

The volume of milk intake by processors grew by 37.9 per cent to 208.5 million litres in the second quarter of 2021.

Cane delivery increased to 1.9 million metric tonnes compared to 1.7 million in the corresponding quarter last year.

Volume of vegetables, cut flowers and fruit exports increased by 58.1 per cent, 55.2 per cent and 23.5 per cent, respectively, in the first six months of the year.

Overall, the country's economy rebounded strongly in Q2 as normalcy returned after Covid-19 social-economic disruptions. 

A note by the exchequer from the much delayed Q2 data shows the country's real GDP  grew 10.1 per cent. 

Yatani said the reopening of schools and the transport sector lcontributed to the growth that softened in the first three months of the year.

Manufacturing at (9.6 per cent), Education (67.6 per cent), Transportation and Storage (16.9 per cent), Information and Communication (25.2 per cent) and Other Services Activities (20.2 per cent) supported overall growth in the second quarter.

The manufacturing sector’s real GDP grew by 9.6 per cent compared to a contraction of 4.7 per cent in the same period of 2020 while the food sub-sector expanded by 6.7 per cent during the review period.

Manufacture of dairy products; bakery products; tobacco products; registered substantial growth. Production of non-food products rose by 12.2 per cent.

Assembly of motor vehicles grew by 10.0 per cent while the manufacture of galvanised iron sheets and paper grew by 34.5% and 13.5 per cent respectively.

Credit advanced to enterprises in manufacturing activity declined by 0.9 per cent to stand at Sh1.26 trillion.

Construction sector growth was relatively slower at 6.5 per cent compared to 8.2 per cent last year.

Even so, cement demand grew by 29.3 per cent to 2,078.8 thousand metric tons, pointing to the sustenance of performance in economic activities in the sector.

The electricity and water supply sector grew by 5.2 per cent compared to a 4.7 per cent contraction in the second quarter of 2020.

Total electricity generated increased from 2,634.9 million kilowatt-hours in 2020 to 2,975.8 million kilowatt-hours in the quarter under review.

The increased generation was notable from all sources except geothermal. Thermal and wind power expanded by about 69 per cent compared to a contraction of 64.9 per cent and 29.3 per cent, in the same quarter of 2020.

Hydro power generation increased by 4.6 per cent to 994.9 million kilowatt-hours in the second quarter of 2021.

The transportation and storage sector grew by 16.9 per cent compared to a contraction of 16.8 per cent in the corresponding quarter of 2020.

The accelerated growth was a result of the lifting of restrictions on domestic and international movement which was in place in the second quarter of 2020.

SGR cargo volumes increased by 25.9 per cent to 1,326 thousand metric tonnes while passenger transport increased from 6,363 in 2020 to 304,445.

Consumption of light diesel expanded by 27.4 per cent compared to a contraction of 22.4 per cent in the corresponding quarter of 2020.

Accommodation and Food Service activities recorded a gradual rebound from a contraction reported in the last three quarters of 2020.

The sector grew by 9.1 per cent in the quarter under review to 56.8 per cent contraction in the second quarter of 2020.

It was the most hit by the Covid-19 pandemic in 2020 registering a significant decline in the number of visitor by more than 99 per cent, scaling down of hotel operations and in extreme cases closures in the second quarter of 2020.

This improved tremendously in the review period after the relaxation of most of the restrictions.

Financial & insurance activities accelerated during the quarter growing by 9.9 per cent compared to 4.4 per cent in the same period 2020.

The broad money supply expanded from Sh3.9 trillion at end of June 2020 to Sh4.1 trillion at end of June 2021.

Net foreign assets reduced from Sh887.4 billion in Q2 last year to Sh781.9 billion by end of June this year.