Inflation hits 65-month high as subsidies end

Kenya‘s cost-of-living measure hit a 65-month high in President William Ruto’s first full month in office on runaway food prices, fuel and household equipment and appliances, the statistics agency reported on Monday.

Inflation – a measure of the cost of living over the last 12 months – rose to 9.6 percent in October from 9.2 percent in the previous month.

The rise in the cost of basic necessities will further constrain the shopping baskets of households, which have already been forced to cut non-essential spending given negative real wage growth.

The rise in the cost of living last month was the fastest since May 2017, when inflation stood at 11.7 percent.

According to the Kenya Bureau of Statistics (KNBS), consumers spent on average 15.8 percent more on grocery purchases than a year ago, while transport costs rose by 11.6 percent.

On the other hand, the average price of household appliances and furnishings increased by 10.9 percent year-on-year, while housing, water, electricity and fuel cost 7.1 percent more than in October 2021. The prices of alcoholic beverages such as beer and whiskey also increased by an average of 6.7 percent percent after the Kenya Revenue Agency raised the consumption tax by 6.3 percent in line with average price growth for the fiscal year ending June 2022.

Kenya is battling its worst drought in 40 years, affecting food production in a country where agricultural activities largely depend on rainfall.

Reduced production of foods like corn usually increases the overall cost of living, as groceries account for nearly a third of household budgets, according to the KNBS.

Kenyans last experienced a sharper increase in the cost of living more than five years ago, when the country similarly suffered from prolonged dry weather conditions. Back then, the Ministry of Finance allowed for several months subsidies and waivers of import duties to make it easier to buy essential commodities such as corn, rice and milk powder from abroad.

Attempts in mid-July to subsidize the price of a two-kilogram pack of cornmeal by President Uhuru Kenyatta’s previous administration failed as consumers struggled to access the commodity in retail outlets, although it cost taxpayers more than 8 euros Billions Sh in a month.

dr Ruto, who pledged during the presidential campaign to bring the cost of a two-kilo pack of cornmeal to under Sh100, has ruled out costly flour consumption subsidies, saying they are unsustainable.

The President has instead opted to cushion farmers against high fertilizer costs by releasing 1.3million 50kg sacks of key input at Sh3,500 per sack, compared with an average Sh6,500 previously.

“The false consolation of a financial bandage must end because we are risking short-term comfort instead of long-term sustainability,” emphasized Dr. Ruto last Friday as he outlined his policy of removing consumption subsidies for cornmeal.

The President has also eliminated subsidies for gasoline, but cut the cushion for diesel and kerosene.

KNBS data shows a kilogram of sugar rose 36.3 per cent year-on-year to an average Sh154.95 last month, two kilograms of cornmeal rose 33.5 per cent to an average Sh177.66, while Irish potatoes rose 32.6 percent to Sh 90 per kilogram.

The cost of diesel, used mainly to run farm machinery and transport, rose the fastest by 47 per cent to an average of Sh163.92 per liter, while kerosene – used mainly for lighting by poor rural households – rose at retail was Sh147.87, an increase of 41.6 percent.

“A second round of inflationary pressures could continue into 2023 from October due to higher electricity prices, higher domestic fuel pump prices and the increase in excise duty,” said Mulalo Madula, an economist at South Africa-based Standard Bank, Stanbic Bank’s parent company, wrote in im Purchasing Managers Index (PMI) report for September.

“In fact, this could dampen consumer spending in the near term.”

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