Business Daily (Nairobi)
Michael Omondi And Mwaura Kimani
3 April 2008
Life for many Kenyans has become unbearable as the cost of basic commodities continues to surge. The price of key commodities including milk, bread and cooking fat have nearly doubled, with the increased expenditure eating deep into the savings of the high income Kenyans while the lower earners are cutting their expenditure on basic commodities in their race for survival. This has seen Kenya's consumer price inflation hit its fastest pace in nearly 14 years last month at 19.1 per cent egged by sky rocketing prices for food items.April 4, 2008: Life for many Kenyans has become unbearable as the cost of basic commodities continues to surge.
The price of key commodities including milk, bread and cooking fat have nearly doubled, with the increased expenditure eating deep into the savings of the high income Kenyans while the lower earners are cutting their expenditure on basic commodities in their race for survival.
This has seen Kenya's consumer price inflation hit its fastest pace in nearly 14 years last month at 19.1 per cent egged by sky rocketing prices for food items.
But now experts are warning that the growing pain among the nation's consumers is set to intensify in coming months, raising the spectre of the double digit inflation that plagued the economy in the 1990's.
The country last recorded a similar rate in July 1991, though the worst years were registered in 1992, 1993 and 1994, where the rates swung between 30 per cent and 60 per cent.
"The price surges is an additional setback for the Kenyan economy, at a time when we are already going through major turbulence following the post-election crisis, which calls for a sober recovery strategy," said Tabitha Runyora, a market analyst with the Kenya Horticultural Development Programme.
"Kenyans should brace for higher prices throughout this year as global or local demand and supply stabilise, perhaps through the Government's intervention, "said Ms Runyora.
While higher prices of farm inputs are leading to rising prices at groceries, the gains are providing a big boost to farmers in areas where the food crops are grown, such as regions of Rift Valley and Central Province.
Analysts are now warning that the situation could become worse.
"There is every reason to believe that the inflation rates would edge up," said Charles Ocholla, the investment banking manager at Suntra Investment Bank. "I foresee inflation rates hitting 25 per cent by the second half of this year."
This would hit the low-income Kenyans hardest- a fact that makes the problem even knottier for the freshly installed PNU/ODM grand coalition government, as both parties had made narrowing Kenyans wealth gap a hallmark of their administration.
To understand why persistent price increases are a growing headache for Kenyans, take the case of Mary Njoki.
To the 41--year- old mother of five who sells chicken at City Market, life in Nairobi is becoming too expensive.
Over the past three years, she has seen her food budget climb three-fold, but her income has not kept pace.
After paying Sh50,000 per term, for two of her children in secondary school, feeding and clothing her family that lives in a rented flat in Ruruta Estate has become an uphill task.
"Three years ago, I spent Sh5, 000 on basic food stuffs to feed my family a month," says Ms Njoki. "Today, I require Sh15, 000 for the same purpose because foodstuffs have risen sharply over the past two years."
Worse still, her business has not been doing well as most of her customers have reduced their monthly intake of chicken due to the rising cost of living that is mainly driven by increasing food prices.
"To most families, consuming chicken has become a luxury left for special occasions," says Ms Mungai.
For the past decade she has sold chicken at the market located in Nairobi's CBD, Mungai has witnessed prices of chicken rise from Sh50 a kilo a decade ago to over Sh250.
She is not alone in mourning the general rise of prices in the Kenya economy. Millions of Kenyans are finding that they are living from hand to mouth.
"We consume one packet of maize flour daily, but when we do not have money to purchase it, the children take porridge," says George Onyango, a security guard in the city. Mr Onyango, a father of four, is worried that the escalating prices of maize flour, cooking fat and kerosene would make life unbearable among slum dwellers.
In February, the consumer price index jumped to 19.1 per cent, from 18.2 per cent in January, as effects of high food prices continued to eat deep into consumers' pockets, said the Kenya National Bureau of Statistics. The latest data shows inflation is at 21.8 per cent.
This was the highest level the month on month inflation rate has hit since 1994 when it stood 28.8 per cent.
Though the official figures do not mean much to the common man on the streets, a look at supermarket shelves reveals that Kenyans have been going through pain as prices of basic commodities soared.
A Business Daily survey on prices of essential commodities at leading supermarkets within Nairobi and kiosks in various city estates, established a sharp rise in prices in four months--averaging at more than Sh15 per essential commodity. Since 2005, cooking fat prices have jumped 75 per cent to Sh340 for the 2kg can and a bar of soap has increased from Sh42 to Sh65.
But the greatest damage has come from the daily consumables including maize meal, milk and bread whose prices have risen sharply over the three year period as manufacturers pass on the increased cost of production to consumers.
For instance, maize meal, which is Kenya's staple food, has increased from Sh48 for the 2kg pack to Sh65, while half a litre of milk has soared to Sh32 from Sh23 with the price of bread rising to Sh32 from Sh18.
Fuel prices have also been at hand to hurt people's pockets as the price of unleaded fuel has risen from Sh55 to Sh95 a litre, while the cost of kerosene, the low income earners main source of fuel, has more doubled from Sh28 to about Sh65 a litre.
The post-election violence cut supply of vegetables throughout the country.
Now, some economists reckon that the sky high commodity prices are here to stay and that consumers will continue to face rising prices for the rest of the year.
This is attributed to the volatile fuel prices at the international energy market and expected surge in food prices egged by the looming food shortage.
The expected food scarcity with disruption of the production chain following the political violence that gripped the country in the first two months of the year coupled with a sharp rise in farm inputs, which has seen farmers cut on their acreage under crop.
The political violence broke out over the controversial tallying of the presidential election result on December 30. With Kenya's food basket, the Rift Valley, hard hit by displacements of more than half a million people, mostly farmers, due to the violence, the volume of food rations is expected to drop from the region.
Still, the soaring costs of farm inputs including fertilizers, labour and ploughing, due to the sharp rise in diesel prices, has significantly dropped the size of land under food crops, according to Tegemeo Institute, a local agricultural policy think tank.
Fertilizer prices have more than doubled over the past six months from Sh1, 800 to over Sh4,000.
Already, 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 Mr Ocholla.
Should the talk of food shortage come to pass, Kenya would have to turn to the international market to feed its granaries.
This would present an awkward situation for the government as the price of grains and other agricultural commodities are trading at record prices, which are not expected to cool down any time soon.
The booming agricultural commodity prices have been attributed to a drop in stocks and the biofuels boom that has added to demand.
The costly food prices will be made worse by the sky high prices of oil, which dealers predict will remain high for the better part of the year.
Last week, crude oil prices hit $106 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.
"I don't expect fuel prices to come down due to the volatile crude prices," said Patrick Obath, the managing director of Kenya Shell.
A litre of unleaded fuel is retailing at an average price of Sh95 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 and transport.
"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.
While prices surges have so far been largely contained to food and fuel, policy makers fret they would spread to other commodities as well.
Already, investors have began to shy away from the construction sector as cost of construction inputs including cement, paints, steel beams and corrugated sheets rise beyond the reach of investors.
The rising cost of living is a fatal blow as it sets in at a time when the economy is facing a sluggish growth in employment and reduced incomes attributed to the after effects of the political violence.
Though a peaceful deal has been brokered, the Government reckons 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.
This is made worse by the fact that earnings in formal employment have not kept pace with the inflation levels, leaving those in employment with weaker purchasing power.
A survey by consultancy firm PricewaterhouseCoopers indicate that wages are likely to grow by an average of eight per cent this year, which pales in comparison to inflation at above 10 per cent.
But the damage from the rising inflation levels is not restricted to people's pockets alone. The savings industry including bank deposits, pension savings and stocks investment look set to post a negative return in a high inflation environment.
Currently, most commercial banks are paying an interest of between four and six per cent with most pension schemes posting returns of between 12 and 18 per cent, its clear the inflation will this year eat deep into the savers return.
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