Inflation hits 6.8pc, State blames ‘the weak shi*ling’

Inflation in Kenya increased to 6.9 per cent in October, up from 6.8 per cent in September, primarily due to external factors resulting in the weakening of the shilling against international currencies, says Kenya National Bureau of Statistics (KNBS).

Macdonald Obudho, Director General of KNBS, attributed this rise to a notable 1.3 per cent increase in the Consumer Price Index (CPI) of the food and non-alcoholic beverages index compared to September.

Obudho explained, “The Food and Non-Alcoholic Beverages Index increased by 1.3 percent between September 2023 and October 2023. The rise in food inflation is mainly attributed to the increase in prices of some food items, which outweighed the decrease in prices of other foodstuffs."

Rising CPI

CPI is a crucial gauge of inflation, reflecting the average change over time in the prices paid by urban consumers for a basket of consumer goods and services. A rising CPI indicates that the prices of goods and services are increasing, signalling inflationary pressures in the economy.

During this period, prices of maize flour, potatoes, and oranges saw significant increases of 9.6 percent, 5.4 per cent, and 2.8 per cent, respectively, despite decreases in the prices of maize (sifted and fortified) and wheat by 4.1 percent and 3.2 per cent, and 0.8 per cent, respectively.

Housing, water, electricity, and gas also rose by 1.9 per cent, as did transport, which saw a 1.5 per cent increase due to higher prices of petrol and diesel, up by 2.7 per cent and 2.2 per cent, respectively.

This upward trend in prices of essential commodities will impact many Kenyan citizens, especially low-income earners who allocate a significant portion of their income to meet their food needs. The timing is also unfortunate as it coincides with the long Christmas and New Year holidays when schools are closed.

Inflation started on a high in 2023 with January recording 7.95 per cent, peaking in May at 8.78 per cent. It then started decreasing from June onwards, with a slight increase in September.

As part of measures to control the inflation, the Central Bank of Kenya (CBK) raised the base lending rate to 9.5 per cent to tighten its monetary policy and curb inflation, which had hit 9.2 per cent in February.

CBK also embarked on fiscal consolidation to address Kenya’s mounting debt sustainability challenges to reduce external and domestic imbalance, measures that seem to have had some success in controlling inflation, which declined from 9.2 per cent in March 2023 to 7.9 per cent in April 2023.

Net importer of oil

However, despite CBK’s efforts, Kenya still faces an uncertain inflationary period, due domestic and external macroeconomic pressures, given the global surge in global prices of food and fuel. 

The country is a net importer of oil, and heavily relies on imports of wheat, rice, and sugar amid a depreciating shilling against major international currencies which is making their imports more expensive and increasing the cost of servicing external debt. This is in addition to the escalating Russia-Ukraine war which has disrupted trade logistics.

The World Bank has projected an average inflation rate of 7.8 per cent for Kenya in 2023, slightly higher than the 7.6 per cent recorded in 2022, citing the depreciation of the national currency along with rising fuel and electricity prices as contributing factors.