Hard economic times for Kenyans recur as inflation pressure bites


Hard economic times for Kenyans recur as inflation pressure bites

In Summary

  • The delayed onset of the long rains season coupled with the upward review of the maximum pump prices by the Energy Regulatory Commission (ERC) has almost assured of the perfect mix to inflationary pressure.
  • Apart from eating away consumer wages, inflation has the impact to raise the cost of borrowing and create acute commodity shortages.
  • On the flip-side however, inflation can against all odds spark consumption while increasing growth.
  • The current inflation rate remains well within the government’s target at 4.35 percent as of March having risen slightly from 4.14 percent in February.
     

Kenyans could once again be headed tough economic times as growing food prices and rising fuel costs take a swipe at consumers spending abilities.

The delayed onset of the long rains season coupled with the upward review of the maximum pump prices by the Energy Regulatory Commission (ERC) has almost assured of the perfect mix to inflationary pressure.

“There is no doubt that the current state of affairs that we are as the country facing upward pressure on inflation. This will impact on the food prices and certainly on the growth of the economy,” Institute of Economic Affairs (IEA) economist John Mutua told Citizen Digital.

While drought has taken hold in at least 13 of the 47 counties, the ERC did on Sunday announce a hike to the prices of all 3 petroleum products by an average of Ksh. 4.50 to see petrol, diesel and kerosene all trade beyond the Ksh. 100 mark per litre for the first time since Valentine’s day.

On the commodities front, the price of essential commodities is once again on the rise having been held in relative stability at the tail end of 2018.

A 500 milliliters (ml) packet of processed milk has seen the highest jump in price so far propelling northwards by nearly 30 percent as productivity buckles under the pressures of depressed rainfall.

The World Bank has already pointed to the impending decline in agricultural production to review downwards its growth estimate for Kenya in 2019 to 5.7 percent from a 6 percent provisional growth in gross domestic product (GDP) in 2018.

Government does in its hold bare instruments to spare the country from any pervasive outcomes of runway inflation to include the reduction of money in supply and the lowering of interest rates through the Central Bank’s Monetary Policy Committee (MPC) to spur increased consumption.

The ability of the State to minimize risks through the latter is however constrained by the continued hold of interest rate caps which have strangled the MPC’s effectiveness in influencing commercial lending while cutting back credit flow to the private sector.

David Ngugi, an investment analyst at Cytonn terms the prevailing inflationary pressures as a double whammy but expects the consumer priced hike to hold within the targeted 2.5 and 7.5 percent.

While energy and fuel prices topped the major price hike concerns in 2018 as the agricultural sector witnessed a rebound, fuel costs and growing food prices are for the same time in as many as 12 months bombarding the economy.

According to Ngugi, the government can find reprieve in implementing short term interventions to prop productivity and consumption to include the adoption of subsidy programs.

“The government needs some short-term fixes. The State could for instance employ subsidies in the production of maize given the commodity’s impact in driving up inflation,” he said.

While a short-term inflation risk is manageable through a short stay solution, the management of a long and perverse outcome to inflation would be no easy fete.

Kenya’s growth the medium term is pegged largely on a number of macro-economic fundamentals which in part include sustained inflationary risks.

Other supportive macro attributes include the consolidation of the country’s fiscal deficit, the strengthening of the current account balance and greater revenue mobilization mechanism domestically.

The current inflation rate remains well within the government’s target at 4.35 percent as of March having risen slightly from 4.14 percent in February.

April 2018 holds the lowest inflation rate in 12 months at 3.73 percent while December of the same year has the highest record of inflation at 5.71 percent, a measure that saw the full impact of both rising global crude prices, surging transport costs.

The inflation ceiling similarly bore the full influence of the introduction of an 8 percent Value Added Tax (VAT) on petroleum products from September 2018.

Apart from eating away consumer wages, inflation has the impact to raise the cost of borrowing and create acute commodity shortages.

On the flip-side however, inflation can against all odds spark consumption while increasing growth.

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Story By Kepha Muiruri
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