•The high inflation is set to continue for a couple of months according to CBK’s new governor Kamau Thugge.
•Prime Cabinet Secretary Musalia Mudavadi admitted the government is struggling and warned it could take two years to stabilise the economy.
Image: JACKTONE LAWI
There was temporary relief for Kenyans in the month of June as inflation eased to 7.9 per cent, despite an increase in prices of some commodities.
Food prices in the country have continued to put households under pressure and raised the cost of living.
The index in the month of June was a drop from eight percent recorded in May and is among the lowest recorded in the past 10 months.
According to Kenya National Bureau of Statistics (KNBS) data, the price changes in food, energy, and transport, which cover about 57 percent of household budgets, were major contributors to the inflation levels.
“The month-to-month Food and Non-Alcoholic Beverages Index increased by 1.3 per cent between May 2023 and June 2023, Notable, the prices for carrots, onions (leeks and bulbs), tomatoes and maize grain-loose increased by 9.0, 7.3, 6.4 and 5.5 per cent, respectively during the same period,” KNBS director-general McDonald Obudho said on Friday.
The prices of potatoes, avocado, kales (sukuma wiki) and cabbages declined by 6.1, 4.6, 2.7 and 0.3 per cent, respectively.
The cost of sugar continued to rise impacted by local shortages of cane, which has prompted the government to open a new duty-free importation window to cushion consumers, in a move expected to check further price increments for the sweetener.
However, the relief is expected to be short-lived as Kenyans are set to be hit hard with the State’s new revenue collection measures contained in the Finance Act assented into law by President William Ruto on Monday.
Already, the Central Bank was forced to hold an off-cycle meeting that raised the interest rates, a month before its scheduled date after consumer prices rose unexpectedly in May.
CBK policymakers raised the benchmark lending rate by 100 basis points to 10.50 percent, the highest level since 2016, during their meeting on Monday, which was held a month early.
Kenyans will now have to grapple with increased energy costs as Energy and Petroleum Regulatory Authority (EPRA) moved to effect the 16 per cent VAT on fuel.
This is under the Finance Act, 2023 which has increased VAT on gasoline, up from 8 per cent.
The high inflation is set to continue for a couple of months according to CBK’s new governor Kamau Thugge.
The Central Bank projected a drop in the inflation rate by the end of August or September 2023, indirectly telling Kenyans to brace for a tough month ahead.
Continued weakening of the shilling is also expected to spike the cost of goods as Kenya remains a net importer.
The shilling is expected to remain weak with projections of further drops in the medium-term, amid persistent forex demand from importers, as well as the impact of rising inflation.
A volatile shilling means importers will be spending more in bringing in goods as raw materials for factories, thereby raising the cost of inputs for firms.
Manufacturers and traders normally recover extra costs through price increases, with consumers paying more.
Kenya’s main imports include petroleum products, machinery, medicine, vegetable oil, pharmaceuticals, cars, wheat and clothing.
The depreciation of the shilling is also set to increase electricity prices through higher forex levies on power bills, further reflecting the impact of the strengthening dollar on household budgets.
Speaking on May 24, 2023, during the opening of the Institute of Certified Public Accountants of Kenya (ICPAK) seminar in Mombasa, Prime Cabinet Secretary Musalia Mudavadi admitted the government is struggling and warned it could take two years to stabilise the economy.
“There are no easy solutions, it will hurt us for about two years but in the long run, the cost of living will go down. Measures taken by the government to resuscitate the economy are painful but they are credible,” said Mudavadi.