Data from the 2023 Economic Survey released yesterday by the Kenya National Bureau of Statistics (KNBS) shows real average earnings per employee both in private and public institutions decreased to Sh696,800, averaging Sh56,250. per month compared to Sh58,000.
The drop in real average earnings per employee came at the time when the value of the local currency has been weighed down by rising inflation.
According to the government's data, the purchasing power of Sh1,000 dropped further by 16 per cent in the period under review, as both service and commodity prices rose on high production costs, a weak shilling, instability in the financial market and the Russia-Ukraine crisis.
The value of Kenya's highest currency denomination has almost halved in the past decade, hitting household budgets hard due to slower growth in wages.
A Sh1,000 note in June 2013 is today worth Sh550 in real terms, eroding the buying power of the shilling. In 2021, the value of Sh1,000 was at Sh638.
During the review period, inflation rose from 6.1 per cent in 2021 to 7.4 per cent in 2022, mainly driven by a surge in food and energy prices.
The OPEC reference basket crude oil prices per barrel rose by 43.3 per cent from $69.7 in 2021 to $99.9 in 2022, largely due to supply chain disruptions caused by the Russia-Ukraine war
The Producer Price Index (PPI) is valued at basic prices and measures changes in the price of goods over time as they leave the producer.
The overall inflation as measured by Producer Price Index (PPI) rose by 15.01 per cent to 125.98 in 2022 from 109.54 in 2021.
The increase in the PPI was witnessed in all sub sectors except in electricity, which fell by 1.65 per cent in 2022.
The highest increase in index was in mining and quarrying at 39 per cent, followed by manufacture of chemicals and chemical products at 31.46 per cent in 2022.
Other products that registered increase in index were manufacture of pharmaceuticals, medicinal chemical and botanical products (28.6 per cent); mining of metal ores (25.78 per cent) and manufacture of paper and paper products (23.73 per cent) in 2022.
All the selected products recorded increased producer prices during the year under review.
Maize flour registered the highest increase in producer price at 42.2 per cent, followed by vegetable oils and wheat flour at 33.0 and 32.2 per cent, respectively, in 2022.
The rise in production costs saw manufacturers pass the extra bill to consumers, forcing prices to skyrocket for some items in the food basket driving food inflation, including wheat, cooking oil, maize flour, milk, potatoes, onions and carrots.
In the period under review, maize grain-loose, wheat flour, gas, diesel, kerosene and petrol recorded the highest price increases by 22.6, 32.8, 31.1, 28.7, 27.1, and 25.1 per cent, respectively.
On the other hand, prices both 200KW and 50KW of electricity dropped by 5.3 per cent and 3.1 per cent, respectively, during the same period.
Annual average CPI for the Nairobi lower income group stood at 125.92 in 2022.
The index was highest in December 2022 at 130.59 and lowest at 120.04 in January 2022.
In 2022, the Food and Non-Alcoholic Beverages Index, which constitutes 32.9 per cent of total household final monetary consumption expenditure, recorded the highest inflation rate of 13.1 per cent.
Transport index increased by 8.1 per cent, mainly driven by increases in prices of petroleum products.
The Housing, Water, Electricity, Gas and Other Fuels Index, which accounts for 14.6 per cent of total household final monetary consumption expenditure, recorded an inflation rate of 5.9 per cent, in 2022.
The high cost of living is one the issues that have sparked bi-weekly protests by the opposition coalition, Azimio La Umoja One Kenya Alliance.
Speaking at the launch of the report, National Treasury boss Prof Njuguna Ndung'u outlined policies put in place to control food inflation.
These include fertiliser subsidies set up to help shield the farmer from the high costs and ultimately protect consumers from the high food prices.
Subsidies, however, are unsustainable and have been proven to distort the market with a negative outcome.
"Through the first schedule of the VAT Act (2013), the government has exempted food items such as eggs, maize, unprocessed milk, meat and tubers from VAT,'' Njuguna said.
He added that irrigation interventions have been put in place by the government to reduce reliance on rain-fed agriculture.
This has, however, not yielded the desired goals.
Only 1.7 per cent of land in Kenya is under irrigation. The existing irrigation schemes have failed to realise their potential, contributing only three per cent to Kenya’s GDP.
He prised the Central Bank of Kenya for swift implementation of monetary policies, especially raising of the base lending rate to soften the rising cost of living.
Last month, the country recorded the slowest inflation in 10 months of 7.9 per cent compared to 9.2 per cent the previous month.
Even so, effects of those monetary measures are yet to be felt in the money markets where the shilling continues to slide against major international currencies.
Yesterday, the shilling traded 136.15 units against the greenback, having dropped almost 15 per cent in the past 12 months.
The Central Bank Rate (CBR) was reviewed upwards from seven per cent in December 2021 to 7.50 per cent in June, 8.25 per cent in October and 8.75 per cent in December 2022.
As a result, average loans and advances in interest rates rose to 12.67 per cent in December 2022 from 12.16 per cent in December 2021.
The high inflation, drought and instability in the international market derailed the country's growth momentum that started in 2021, after the recovery from the effects of the Covid-19 pandemic that had significantly slowed down economic activity.
The magnitude of growth was somewhat subdued by suppressed agricultural production, owing to adverse weather conditions during the year.
The real Gross Domestic Product decelerated from a revised growth of 7.6 per cent in 2021 to 4.8 per cent in 2022.
On the other hand, the nominal GDP increased from Sh12.03 trillion in 2021 to Sh13.4 trillion in 2022.
Most of the sectors of the economy posted decelerated growths, mainly due to the significantly high growths attained in 2021 that signified recovery from the economic downturn in 2020.
During the period under review, all economic activities registered positive growths except Agriculture, Forestry and Fishing, which contracted by 1.6 per cent.
Some of the key sectors that supported the growth in 2022 were Transportation and Storage (5.6 per cent), Finance and Insurance (12.8 per cent), Information and Communication (9.9 per cent) and Accommodation and Food Service activities (26.2 per cent).
Kenya is the only economy in East Africa whose projected economic growth for 2023 has been revised upwards by the International Monetary Fund in its latest review.
In the recently released World Economic Outlook, IMF projects that Kenya will grow at a rate of 5.3 per cent in 2023 from 5.1 per cent forecast in October 2022.
The IMF has also revised downward its projections for Rwanda, Uganda, Burundi and the Democratic Republic of Congo downwards.
