Business Daily (Nairobi)
James Makau
1 April 2008
The effects of the post-election violence in Kenya at the start of the year are coming home to roost, as the cost of living in March escalated, pushed up by the rapid rise in the price of key food commodities and fuel.
Data from the Kenya National Bureau of Statistics indicates that the country's annual inflation- general increase of prices of goods and services- stood at 21.8 per cent in March compared to 11.73 per cent in the same period last year.
Following the skirmishes that rocked the country in the wake of a disputed general election in December, the bread basket region of the Rift Valley and other key food producing areas were unable to deliver produce to the market.
This has meant shortages in the market even after the signing of a yet to be implemented power- sharing deal on February 28.
"The levels of inflation are seriously high in comparison to the same period last year," said Resa Imbuye, investment analyst at Old Mutual Asset Managers.
Kenya's consumer price index (CPI) stood at 270 at the end of March this year, compared to 225 in March in 2007.
The CPI indicator shows the state of the Kenyan economy and the impact of inflation. It is derived by monitoring the price movements of a basket of essential goods and services . The goods range from rice to milk, electricity to shoes.
"The food and non-alcoholic drinks index increased by 4.3 per cent ... in March mainly due to increases in the prices of tomatoes, sukumawiki (kale), beans and maize flour," the Kenya National Bureau of Statistics report showed.
Food and non-alcoholic drinks make up 50.5 per cent of the goods used to measure inflation.
Annual inflation rose in January following post-election unrest in the country in which more 1,000 people were killed and another 300,000 displaced.
Some crops have not been planted this season as some farmers are still displaced, signalling record prices for most staple foods later this year.
Farmers say seed and fertiliser prices have also increased since the crisis, adding on to the costs of inputs of producing key agricultural produce. This has prompted some to reduce acreage under farming.
In early March, Central Bank said Kenya's inflation outlook depended on the political stability of the country and food and oil price movements .
Underlying inflation, which excludes food prices, increased to 9.8 per cent in March from 9.3 per cent in February.
Analysts say poor distribution networks and higher transport costs are also pushing up the absolute prices of key commodities.
Residents of western Kenya in particular are paying more for basic commodities with reports indicating that inflation in Nyanza, Western and Rift Valley provinces stands at about 30 per cent.
The price of fuel in these regions had earlier in the year increased to between Sh150 and Sh200 a litre, a sharp contrast to the retail price of Sh92 in Nairobi's Central Business District.
"The situation has not been helped by the escalating world oil prices and a strengthening Kenya Shilling," said Mr Imbuye.
Globally, oil reached a record high of $111.80 a barrel on March 17, propelled by long-term supply constraints that have so far outweighed the impact on demand from an economic slow down in top energy consumer United States.
With the tension in the political arena having eased off, the Kenya Shilling has continued to strengthen against the US dollar, standing at Sh62.45/65 levels from lows of Sh73 at the height of the political impasse.
With the outlook of food prices looking dim, oil marketers say the record-high fuel pieces are here to stay.
A litre of unleaded fuel is retailing at an average price of Sh98 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 no longer sound unlikely.
The price increase would hit hard at manufacturers and transporters, among other businesses, which would be reflected in higher prices for commodities.
There are also fears that the overall 12-month 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.
Underlying inflation, which excludes food prices, also increased from 5.9 per cent in November to 7.6 per cent in December, above the five per cent target.
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