8 November 2017

East Africa: Cost of Living Across the Region Eases As Food Prices Decline

Photo: Daily Monitor
Some of Uganda’s local foods. Food is a major factor that influences a tourist’s choice of their next destination.

Consumers across East Africa will experience less pressure on their household budgets after the cost of living dropped last month, helped by the August harvest that lowered food prices.

Over the past six months, the region has battled a rise in the cost of living blamed on erratic weather, political uncertainty and a slowdown in economic growth that has left businesses struggling.

Inflation

Kenya and Uganda endured a rise in their cost of living while Tanzania enjoyed an ease in inflation pressure since May, but this was cut short in September, rising to 5.3 per cent year-on-year.

In August, the Tanzania National Bureau of Statistics (NBS) said inflation had eased to 5.2 per cent from 5.5 per cent in July as the prices of essential food commodities dropped. However a spike in the prices saw the cost of living rise slightly in September.

Kenya's inflation dropped to its lowest point in 16 months in October to 5.72 per cent, as food prices continued to stabilise while Kampala's dropped to 4.8 per cent from 5.3 per cent in September, the country's statistics office said last week.

This is the second straight month Kenya's inflation has eased, having dropped from a high of 7.01 per cent in September in the wake of heightened political activity that saw a rise in the demand for food and fuel as households rushed to stock up over fears of post-election conflict.

Data from the Kenya National Bureau of Statistics (KNBS) shows the food and non-alcoholic drinks index fell by 1.78 per cent in October, due to favourable weather, with lower prices for cabbages, carrots, maize and beans.

Central Bank of Kenya Governor Patrick Njoroge last month said that despite the drought, food inflation will not have knock-on effects on the macro-economy if monetary policy is managed correctly.

"We are not worried about that and at this moment inflation is well-anchored. A prolonged drought early this year affected food production leading to a sharp rise in inflation but with the expected harvest, we are going to see it slow down," Dr Njoroge said.

Drought in Kenya

Kenya has been recovering from a serious drought experienced at the start of the year, peaking in May but dropping in June and July as the onset of the rainy season improved food supplies. Farmers have been experiencing improved harvests over the past three months.

On the downside, the cost of fuel has been increasing steadily, leading to higher electricity charges and transport costs whose index rose by 0.86 per cent in October. Consumers also spending more on rent and cooking gas, which rose by 0.47 per cent.

"The higher cost of electricity was attributed to an increase in the foreign exchange adjustment charges despite the fuel and other charges remaining constant," said KNBS director general Zachary Mwangi.

In Kampala, data from the Uganda Bureau of Statistics (UBS) shows that October's inflation declined by 0.5 per cent mainly driven by the food and services sector.

"This decrease was due to services inflation, which dropped to 2.3 per cent from 4.1 per cent in September. In addition, the annual food crops inflation declined to 7.8 per cent from 9.6 per cent in September," said the director of macroeconomic statistics at UBS Dr Chris Mukiza.

However, other goods inflation increased to 4.3 per cent from 4.2 per cent in September. The lower costs of food was driven by vegetables that declined by 6.5 per cent. Fruit prices also declined by 9.7 per cent from 10.9 per cent the previous month.

Fuels and utilities costs

Like Kenya, Uganda saw its energy, fuels and utilities costs increase to 14.1 per cent in October from 10.6 per cent the previous month, driven by higher costs of solid fuels (charcoal and firewood), which had the highest increase of 25 per cent. On the other hand, the country recorded a 5.3 per cent drop in its fuel cost.

Early last month, while reducing the country's Central Bank Rate to 9.5 per cent, Bank of Uganda Governor Emmanuel Tumusiime-Mutebile said that the inflation outlook remains unchanged with the forecast within the target range of five per cent over the short term.

"We expect the annual inflation forecast to remain around the medium-term target of five per cent. This is as a result of the country's' economic activity slowly gaining momentum," said Mr Mutebile.

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