Business Daily (Nairobi)
Michael Omondi
3 March 2008
Inflation hit a 14-year high in February as analysts warned of more shocks to come in consumer goods prices.
Rising food and fuel prices look set to be the key drivers of the living cost with analysts warning that inflation rates above the 22 per cent mark looks a possibility.
"All indications point to inflation rates increasing at least until the second half of the year," said Abdi Hassan, the investment manager at Stanbic Investment Management Services, citing an expected surge in food prices, notably in the first half of the year.
Figures from the Kenya National Bureau of Statistics show that inflation increased to 19.1 per cent, from 18.2 per cent in January, as effects of high food prices continue to eat deep into consumers' pockets.
This is the highest level the month on month inflation rate has hit since 1994 when it stood 28.8 per cent. "Food and non alcoholic drinks index increased by 2.4 per cent in January compared to December 2007 due to increase in the price of cooking fat, salad oil and carrots," said the bureau yesterday in statement.
The rising cost of living is a fatal blow as it sets in at a time when the economy is facing job losses and reduced incomes following the political violence broke out over the controversial tallying of the presidential on December 30.
Though a peaceful deal has been brokered, policy analysts reckon that the country might not hit its growth targets due to the political turmoil with talk it could knock at least two percentage points off the country's economic growth this year.
The economy grew at the rate of 7.1 per cent last year. Last month, the political violence pushed the inflation rate jumped from 12 per cent in December to 18.2 per cent in January, the highest jump in more than five years .Now, food scarcity associated with the first three months of the year coupled with disruption of the production chain following the political is expected to drive inflation to record levels.
With Kenya's food basket, the Rift Valley, hard hit by displacements of more than half a million people, mostly farmers, due to violence, the volumes of food rations is expected to drop.
Food experts, led by UN food agency FAO, are talking of an acute food shortage in the coming months, but the government has since denied this, saying that the country has enough food to last eight months.
Analysts are sounding the alarm that the expected food shortages would spark a sharp rise in food prices, setting the stage for record inflation levels given that the food index accounts for more than half the overall inflation index.
"The food driven inflation will continue to drive the cost of living upwards," said Charles Ocholla, the investment banking manager at Suntra Investment Bank.
This will be made worse by the sky high prices of oil, which dealers predict will remain high for the better part of the year. Yesterday, crude oil prices hit $102 a barrel, having risen from $88 at the start of the year on increased demand for the commodity and fears over supply of the commodity.
Local oil marketers are also showing a strong bias for expensive fuel with many saying that the sky-high fuel pieces are here to stay.
A litre of unleaded fuel is retailing at an average price of Sh93 in Nairobi up from Sh84 in mid December. But with indications that barrel prices are likely to remain high, players in the oil market say the prospects of pump prices coming within touching distance of Sh100 does not sound remote.
The price increase would affect manufacturers and transporters, among other businesses, which would be reflected in higher prices for commodities. "When fuel prices go up, everything goes up, so I expect an increase in general commodities," said Mr Peter Wachira, senior investment manager at AIG Investments in an earlier interview.
There are also fears that the underlying inflation could remain high in coming months, in a move that is set to defy the government's target of single digit inflation, which has often been elusive since last May.
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