INFLATION

Global living cost to remain high, but ease in 2023 - report

In Summary
  • FocusEconomics, the cost of living is expected to average 8.5%
  • The Central Bank of Kenya expects the 2022 inflation to average 7.1 per cent.  
An almost-empty shelf of maize flour in a supermarket (left) and a trolley packed with packets of subsidised unga by a shopper at a supermarket in Thika Town.
SHORTAGE: An almost-empty shelf of maize flour in a supermarket (left) and a trolley packed with packets of subsidised unga by a shopper at a supermarket in Thika Town.
Image: JAMES WAINANA

The high cost of living witnessed in Kenya is being felt across the world, with the latest global survey indicating a further rise in the third quarter before easing in 2023.

According to the global Inflation Outlook for 2022 by FocusEconomics, the cost of living is expected to average 8.5 per cent, the highest rate in four decades before dropping to 3.8 per cent same period next year.

''Inflation is projected to peak in Q3 before declining towards the end of 2022 and into 2023,'' FocusEconomics says. 

By region, inflation is forecast to be highest in Eastern Europe and Latin America at 13 per cent, due to disruptions caused by the war in Ukraine.

This is attributed to a complete halt to Russian gas flows to Europe.

Last month, the Russian state utility company Gazprom announced that it would halt gas flows through the Nord Stream 1 pipeline— by far the most important route transporting gas from Russia to Europe—indefinitely. 

Sub-Saharan Africa will record the second highest inflation at 12 per cent on the back of weaker currencies, and high global food prices—food typically makes up a large proportion of the CPI basket.

Inflation in the Middle East is expected to touch a high of 10 per cent, four per cent in G7 countries and three per cent in Asia except for Japan. 

''Inflation in Asia ex-Japan is forecast to be the lowest of all major world regions next year, thanks to relative currency strength and Asia’s role as the world’s manufacturing hub aiding the supply of goods,'' the report says.

At least 68 per cent of economists at FocusEconomics expects a global recession this year, with a majority expecting GDP to decline in the US and Euro area next year on the back of tighter monetary policy, and an energy crunch in Europe. 

''If central banks hike rates more aggressively than expected, this would raise the possibility of the recession still further,'' the report reads. 

In the US, the Federal Reserve has already resolved to deliver another 75-basis-point interest rate hike next week and likely hold its policy rate steady for an extended period once it eventually peaks. 

If realised, that would take the policy rate to the 3-3.25 per cent target range, the highest since early 2008, before the worst of the global financial crisis. 

The survey panelists see global interest rates rising by over 200 basis points this year, and peaking in mid-2023.

Moreover, China’s economy is currently fragile, due to the Covid-19 restrictions and a property sector downturn.

Even so, the 120 economists are optimistic that the cost of living will ease and general economic growth embark on a positive trajectory, thanks to easing supply constraints. 

This is attributed to the ease in pent-up demand for goods which is fading following the easing of lockdown measures and the recent deal between Ukraine and Russia to allow Ukrainian agricultural exports to resume. 

Since May, wheat prices have fallen by around one-third and corn prices by roughly 10 per cent.

This is causing transportation bottlenecks to ease: container costs are now close to $5,000 (Sh600,000), compared to nearly $10,000 (Sh1.2 million) at the outset of 2022.

''This downward trend should persist going forward, particularly as more container capacity comes on stream,'' the report says.

In Kenya, inflation which is currently at 8.5 per cent is expected to rise on high fuel prices, weakening shilling and poor rainfall before easing to an average of 7.1 per cent at the end of the year. 

A litre of Super Petrol is now retailing at Sh179.30, having gone up by Sh20.18, diesel Sh165 up by Sh25 and kerosene Sh147.94, having increased by Sh20.  

The shilling on other hand has shed six per cent in value against the US dollar for the past 16 months. Yesterday, it closed the day at 120.29 units against the greenback. 

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