Home Economy Inflation hits 8.5pc as food, fuel prices surge

Inflation hits 8.5pc as food, fuel prices surge

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Consumers endured the sharpest rise in the cost of living in more than five years in August, amid a failed maize flour subsidy, rising fuel costs and a weakening shilling.

Official data released Wednesday showed the cost of living crisis intensified in August on soaring prices of food, energy, transport, housing as well as home appliances and equipment.

Inflation, a measure of the cost of living, climbed to a 62-month high of 8.5 percent from 8.3 percent the prior month.

The rate of inflation was the fastest since June 2017 when it hit 9.21 percent in the run-up to the previous electioneering cycle.

Consumers on average spent 15.3 percent more last month on foodstuffs than a year ago, while transportation costs were up 7.6 percent, according to the Kenya National Bureau of Statistics.

The average cost of furnishings, household equipment and routine household maintenance increased 10.3 percent year-over-year, while housing, water, electricity and fuel were priced 5.6 percent higher.

In a bid to ease the cost of staple maize flour, which had in July crossed Sh200 per two-kilogramme packet for the first time, the government entered into a month-long subsidy deal with millers in July to cut the cost to half ahead of the now disputed presidential poll on August 9.

However, consumers struggled to get the subsidised maize flour in retail stores due to short supply.

The KNBS, which has in the past published the cost of fortified two-kilogramme packet of maize flour, on Wednesday included the price of loose maize flour only.

A kilo of loose maize flour cost 37.9 percent more per kilogramme at Sh78.40 on average compared with last year, while the price for loose maize grain jumped 35.8 percent to Sh74.19 on average.

Other basic commodities whose prices have shot up significantly are laundry soap, which cost 36 percent more to Sh168.20 per 800-gramme bar, and detergents which increased 21.1 percent to Sh201.89 per 500 grammes on average.

The shilling has shed about 6.1 percent of its value against the bullish US dollar since the beginning of the year. The Kenyan currency on Wednesday hit 120.10 for the first time trading against the dollar and is likely to compound the cost of living crisis in the coming months.

This is because the country relies on imports for key industrial inputs such as fuel and raw materials like wheat and edible oil, as well as farm inputs like fertiliser.

The price of goods such as crude oil, food, machinery and cars have increased in the wake of the shilling weakening by 6.1 percent since the start of the year, compared to a 0.5 percent depreciation in a similar period in 2021.

The shilling has been under sustained pressure from increased dollar demand from importers, especially oil and merchandise traders, amid speculation of further decline.

Kenya is a net importer of intermediate goods and raw materials for industrial use in the manufacture of basic household items such as cooking oil, which means currency costs get passed on to locally produced goods.

The country also spends billions of shillings importing a wide variety of goods, including petroleum products, wheat, second-hand clothes, motor vehicles, vegetable oils and industrial machinery, whose costs are rising as the shilling weakens against the dollar.

Maize and fuel subsidies are stop-gap measures which are set to be reviewed when the new President takes office in a government short of cash after failing to tap more than Sh180 billion of the budgeted foreign debt in the year ended June.

“Sustainability of subsidies depends on the available fiscal space. As we all know, we have significant constraints on fiscal space…because there are some other urgent needs,” Central Bank of Kenya Governor Patrick Njoroge said on July 28.

“In general terms, we are clear that this is not something that will be maintained in the medium term. So there is a sunset for these subsidies.”