Kenya’s inflation has risen to a 27-month high in May as the cost of vital products such as cooking oil, food, fuel, and soap increased, putting pressure on household budgets and driving up demand for goods and services.
The Kenya National Bureau of Statistics (KNBS) reveals that the cost of living index increased to 7.1 percent in May from 6.5 percent the previous month.
This is the largest increase in inflation since February 2020, when it was 7.2 percent, causing the Central Bank of Kenya (CBK) to issue a warning that the rate could exceed the government’s target range of 2.5-7.5 percent.
In a situation where enterprises have frozen salaries as they recover from Covid-19 economic challenges, many households, particularly those in the low-income group, have been compelled to reduce their shopping baskets.
Workers have been compelled to cut back on non-essential things like beer and airtime as the cost of vital commodities has risen, impacting companies like East Africa Breweries Limited (EABL) and Safaricom.
According to KNBS managing director Macdonald Obudho in a statement, “The increase in inflation has been primarily linked to increases in commodity prices under food and non-alcoholic beverages (12.4%); furnishings, household equipment, and routine household maintenance (7.9%); transportation (6.4%); and housing, water, electricity, gas, and other fuels (6.0%) between May 2021 and May 2022.”
The central bank is cautioning that there is a “clear and present threat” that inflation may rise beyond 7.5 percent in the next months, the first time it has done so since August 2017, when it reached 8.04 percent.
Inflation has skyrocketed to multi-year highs in most countries, owing to a resurgence in economic activity and a further stretching of supply chain disruptions that have made petrol and food more expensive.
Despite the fact that supply chain disruptions and their influence on inflation are generally outside the authority of central banks, many have begun to withdraw ultra-loose monetary policy to rein in runaway prices.
The CBK’s inflation-targeting Monetary Policy Committee (MPC) increased the benchmark central bank rate (CBR) – a signal for interest rate direction — to 7.5 percent on Monday, up from 7.0 percent, where it had been pegged since April 2020.
Njoroge said, “We will take all necessary steps to combat inflation.” However, it is apparent that monetary policy has little effect on supply-side inflation [increases in the cost of goods]. “Monetary policy deals with second-round consequences.”
“Even so, we recognise that this [increase in CBR] isn’t completely successful.” That will take some time, maybe three months, to fully integrate into the economy.”
Given that average real wages, adjusted for inflation, were negative 3.83 percent last year compared to negative 0.59 percent in 2020, high-cost commodities have impacted workers hard.
Employers claim that when the economy recovers from the Covid-19 economic troubles, which resulted in layoffs, pay cuts, and firm closures, real wages will take longer to revive.
The rising cost of living index has also had an influence on Kenya’s private sector.
Rising consumer inflation and supply shortages for several items slowed private sector activity in April.
The S&P Global Kenya Purchasing Managers’ Index (PMI) fell from 50.5 a month ago to 49.5. Growth in activity is distinguished from contractions at the 50.0 level.
Customer demand has slowed as a result of increasing inflation, according to the poll.
Cooking oil and fat increased by 47.09 percent to an average of KSh370.71 in May from KSh252.03 a year ago, according to KNBS data.
Wheat flour was next, with a two-kilogramme packet selling for KSh165.89 on average, up 28.45 percent from the previous year, while staple maize flour sold for KSh148.57 on average, up 23.80 percent.
According to the KNBS, an 800-gram bar of soap cost KSh153.67 on average, up 25.92 percent from KSh129.15 a year before.
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