TOUGH TIMES

Elections “curse” haunts Kenyans as inflation hits 5-year high

It hit 8.3% in July, the highest reading since September 2017.

In Summary

•Inflation rate in Kenya has averaged 8.88% from 2005 until 2022, reaching an all time high of 31.50% in May of 2008, when the country experienced post-elections violence.

•It hit a record low of 3.18 percent in October of 2010, during the late President Mwaki Kibaki’s tenure.

A display of tomatoes at Kangemi Market, Nairobi/
A display of tomatoes at Kangemi Market, Nairobi/
Image: FILE

The cost of living in Kenya has once hit a high of eight per cent, coinciding with another elections year, even as global factors play a major role.

Annual inflation hit 8.3 per cent in July, the highest reading since September 2017, a year that the country witnessed a nullified elections.

According to the Kenya National Bureau of Statistics (KNBS), the rise in inflation was mainly due to increase in prices of commodities under food and non-alcoholic beverages (15.3 per cent), transport (7.0 per cent) and housing, water, electricity, gas and other fuels (5.6 per cent) between July 2021 and July 2022.

These three divisions account for over 57 per cent of the weights of the 13 broad categories used to measure the cost of living.

During the month, prices of maize grain( loose), carrots and non-aromatic (unbroken) white rice and beans increased by 13.0, 9.7 and 4.2 per cent, respectively.

Alcoholic beverages, tobacco and narcotics index increased by 1.3 per cent between June 2022 and July 2022.

“This was due to an increase in prices of beer (lagers and stouts), among other items,” KNBS director general Mcdonald Obudho said.

The housing, water, electricity, Gas and other fuels’ index, increased by 0.3 per cent between June 2022 and July 2022 due to increase in prices of house rent single room, among other things.

During this period, the price of cooking gas decreased by 3.7 per cent.

Last month’s inflation was an increase from 7.9 per cent in June, with the cost of living having been on a rise since March this year, after falling to 5.1 per cent in February.

Kenyans took to the street in July to protest high cost of living, which has been hugely blamed on global supply chain disruption caused by the Russia-Ukraine war, with the two countries being major food baskets and producers of key industrial material.

A fortnight ago, President Uhuru Kenyatta directed that the price of a 2kg packet of maize flour, a staple food commodity in many households, be lowered to Sh100, from Sh205.

The move, Uhuru said, was part of the government's stimulus programme aimed at cushioning Kenyans from the high cost of living.

"Being led by empathy and understanding and our desire to cushion our population from the rising cost of living, today my administration wishes to implement a 5th stimulus programme focusing on the Unga crisis,” he said during an address.

The move was however seen as a political gimmick by a section of the public, as the government sought to win the hearts of Kenyans ahead of next week's polls. 

There has been a scramble in retail stores, as the subsidised flour remains in short supply.

High inflation in 2017 was primarily caused by drought, according to experts, with 2022 being pegged on global factors.

According to Financial Risk Analyst Mihr Thakar, the country is this year being hit with global supply chain failures, the remnants of ultra-lose monetary policy in developed countries, and the lasting effects of recent unpredictability in rains in Kenya.

Churchill Ogutu, Economist, IC Asset Managers (Mauritius) said: “In 2017, we had drought and this time round we have global supply chain distortions. I would say, it's coincidental that the spikes happen in an electioneering year.”

However, elections have traditionally come with distribution of handouts, which lead to more cash flow against fewer goods.

“Relationships with elections therefore appears coincidental at first sight, but it is certainly worth noting that the trend of politicians distributing handouts does increase disposable income among the low income population, hence increasing in aggregate the spending power chasing limited goods,” Thakar say.

Inflation rate in Kenya has averaged 8.88 percent from 2005 until 2022, reaching an all time high of 31.50 percent in May of 2008, when the country experienced the post-elections violence.

It hit a record low of 3.18 percent in October of 2010, during the late President Mwaki Kibaki’s tenure.

Three surveys by the Central Bank of Kenya (CBK)—Private Sector Market Perceptions Survey, CEOs Survey, and the Survey of Hotels—revealed sustained optimism about business activity and economic growth prospects for 2022.

"The optimism was attributed to government spending on key infrastructure projects, continued post Covid-19 recovery, and expected pickup in economic activities after the elections," CBK governor Patrick Njoroge notes. 

Nevertheless, respondents remained concerned about high inflation, the impact of the war in Ukraine on commodity prices, supply chain disruptions, and the impact of the depressed rainfall on agricultural production.

IMF notes that elevated inflation will complicate the trade-offs central banks face between containing price pressures and safeguarding growth.

In a recent statement approving $235.6 million (Sh28 billion) loan for Kenya, its board warned that the upcoming general election will push up inflation before it eases early next year. 

''Inflation moved above the Central Bank of Kenya’s official target band of 2.5 percent to 7.5 percent in June and is expected to peak this year before easing back within the band in early 2023,'' the lender said. 

It added that downside risks predominate in the near term.

''Uncertainties stem from the war in Ukraine, continuing drought in the semi-arid regions, unsettled global financial market conditions and the political calendar. But Kenya’s medium-term outlook remains favourable,'' IMF acting chair Antoinette Sayeh said.

In April, the lender projected the country's inflation for the year to average 7.3 per cent. 

It maintained Kenya's economic growth prospects for the financial year at 5.7 per cent, pegged on the positive performance of the tourism sector following the global economic recovery and a robust private sector.

The high cost of living is however not particular to Kenya, as other economies, including the US and European countries navigate high inflation rates, mainly on global factors.

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