Inflation rises to 27-month high as spending falls - Business Daily

Inflation rises to 27-month high as spending falls – Business Daily


Inflation rises to 27-month high as spending falls

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Customers are shopping at a local supermarket. profile picture | NMG

Inflation in Kenya hit a 27-month high in May on the back of a jump in the prices of basic items such as cooking oil, food, fuel and soap, which squeezed household budgets and demand for goods and services.

The cost-of-living measure rose to 7.1 percent in May from 6.5 percent the previous month, Kenya’s Office for National Statistics reported on Tuesday.

This is the highest jump in inflation since February 2020 when it reached 7.2 per cent, prompting the Central Bank of Kenya to warn that the measure risks rising above the government’s target range of 2.5-7.5 per cent.

This has forced many families, especially in the lower income bracket, to reduce their shopping cart in an environment where companies have frozen salaries as they recover from the economic hardships of Covid-19.

The rise in the cost of essential goods forced workers to cut back on spending on non-essential items such as beer and air time, which ultimately hurt companies such as East Africa Breweries Limited (EABL) and Safaricom.

“The reason for the high inflation is mainly due to the increase in the prices of food and non-alcoholic beverages (12.4 percent); home furnishings, equipment and routine home maintenance (7.9 percent); transportation (6.4 percent) and housing,” MacDonald Obudo, managing director of KNBS said in a statement. water, electricity, gas and other fuels (6.0%) between May 2021 and May 2022.

The central bank warned on Tuesday of a “clear and present risk” of inflation rising above the upper limit of 7.5 percent in the coming months, the first breakout since August 2017 when it rose to 8.04 percent.

Read also: Rising food and fuel prices push the inflation rate to 7.1 pieces

Inflation in most countries has risen to its highest levels in several years, spurred by a rebound in economic activity and mounting pressure on rampant disruptions in the supply chain that have made energy and food expensive.

Supply chain disruptions and their impact on inflation are still largely outside the control of central banks, yet many have begun to withdraw monetary policy that is too loose to control spiraling inflation.

The Central Bank of Kuwait’s inflation targeting monetary policy committee on Monday raised the benchmark central bank rate (CBR) – in reference to the direction of interest rates – to 7.5 percent from 7.0 percent where it has been stuck since April 2020.

We will take all necessary measures to deal with inflation. But it is clear that inflation is driven by the supply side [growth in cost of commodities]There is almost nothing monetary policy can do. “What monetary policy is doing is dealing with the effects of the second round,” Central Bank of Kuwait Governor Patrick Njoroge said yesterday.

“Until then, we understand that this [rise in CBR] Not completely effective. It will take some time, say about three months, to be fully integrated into the economy.”

Expensive goods have hit workers hard given that average real wages, adjusted for inflation, were negative 3.83 percent last year compared to 0.59 percent in 2020.

Employers say real wages will take longer to improve as the economy recovers from the economic hardships of Covid-19, which has led to layoffs, salary cuts and business closures.

The private sector in Kenya has also been affected by the rising cost of living.

Read also: Explanation: Why inflation is so bad – Public Enemy No. 1

Private sector activity declined in April, affected by rising consumer inflation and a shortage of some goods.

The S&P Global Kenya Purchasing Managers’ Index (PMI) fell to 49.5 from 50.5 the previous month. The 50.0 mark separates growth in activity from contractions.

The survey indicated that the rise in the inflation rate slowed in turn in customer demand.

“Domestic demand has fallen, driven by lower customer spending after big increases in food and fuel prices,” said Korea Kamau, fixed income and currency strategist at Stanbic Bank.

KNBS data shows that cooking oil and fat jumped by the highest rate of 47.09 percent to an average of Sh370.71 in May from Sh252.03 a year earlier.

It was followed by wheat flour which averaged a two-kilogram package of Sh165.89 – up 28.45 per cent from the previous year – while basic cornmeal sold for a similar amount at 23.80 per cent higher at an average of Sh148.57.

KNBS data further indicates that an 800-gram bar of soap averaged Sh153.67 Sh153.67, an increase of 25.92 percent over Sh129.15 a year earlier.

Read also: Central Bank raises interest rates to tame inflation

Households paid 21.49 percent more for a liter of diesel – largely used in agriculture and transport – to shilling 131.91 compared to a year ago, while gasoline rose 18.65 per cent to an average of Sh150.94.

Other commodities whose prices have risen significantly are milk, with a 500-milliliter package costing 16.32 percent more at Sh57.30, spinach (12.35 percent more at Sh69.86 per kilo) and beef (513.07 per kilo on average, 9.11 percent growth) on an average basis. annual).

“With the rains, we expect fast-growing crops such as sukuma wiki, tomatoes and even potatoes to reach the market, thus putting downward pressure on food prices and inflation,” said Dr. Njoroj.

The higher prices of most commodities are largely due to the rising global costs due to the continued disruption of the supply chain.

For example, the Food and Agriculture Organization of the United Nations Food Index shows that the cost of edible vegetable oils such as crude palm, sunflower, soybean and corn oil — used to make cooking oil and soap — jumped on average by 27.8 percent between January and May. year, adding to a 36.1 percent increase last year.

Other commodities whose global prices jumped the most between January and May include wheat (52.9 percent) and murban oil (27.3 percent), according to the United Nations.

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