Inflation shakes up household’s spending habits
Cost of living concerns hit fever pitch in July when overall inflation rate reached 8.3 per cent with millions of Kenyans struggling to stay afloat due to high prices of basic commodities.
The worsening situation has been compounded by the lingering political uncertainty brought about by the Presidential petitions challenging President-Elect William Ruto’s win. The Supreme Court has scheduled a pretrial conference for today.
A growing number of Kenyans confess they are pressed to the wall, with many conceding that the present cost of living is unlikely to let up in the near future, going by the political pressure and weaker global economic growth. The country’s annual inflation rate has been rising on account of many macroeconomic factors including the Covid-19 pandemic but has intensified due to the ongoing global war between Russia and Ukraine.
You have noticed it at the petrol stations, in food prices, or in the housing and real estate market, and for those who follow activities at the Nairobi Securities Exchange (NSE), you definitely hear about it in the lips of billionaires’ investor talking points.
“It is interesting to watch men accompanying their families to the supermarket these days. I think it is due to the increasing cost of commodities and they are feeling the pinch,” said Peter Njenga, a supervisor at Naivas in Naivasha.
The ensuing effect of rising inflation – which is a general increase in the prices of goods and services in an economy – has led to a slow growth in consumer spending among Kenyans, with most households today opting for cheaper alternatives to the products they were accustomed to.
“We do not see big numbers walking in for shopping anymore like was the case in the previous months. We are seeing peculiar purchasing habits among middle class shoppers who are going after product brands with slightly cheaper price tags,” disclosed Vincent Omwoko, a supervisor with a local retail supermarket.
He further revealed that, majority of such shoppers have also shied away from buying luxurious products like chewing gum, soft drinks and snacks which customarily accompany heavy shopping in such outlets. Instead, most shoppers are now going after basic commodities like milk, maize flour, bread and cooking oil.
“You will also notice the number of items in their shopping baskets, very basic,” remarked Omwoko. The situation is also worse in eatery joints with a growing number of middle-class Kenyans cutting back on restaurants to save money.
Caroline Wanjiru, a waitress at an eatery in Nairobi, acknowledges similar concerns at her work place, once a popular restaurant previously frequented by an overwhelming number of revelers.
“Previously most people who came here after 1pm would struggle to get seats, which is not the case anymore. Just a handful of them come in and the kind of food or drinks they offer are below Sh500, which tells you how tough it is out here,” she explains, expressing fears of a layoff if the situation persists.
Kenya National Bureau of Statistics (KNBS) data shows that Consumer Price Index (CPI) rose to 125.05 points in July from 124.22 points in June of 2022.
Ordinarily, when there is an upward change in the CPI, this means there has been an increase in the average change in prices over time, which eventually leads to adjustments in the cost of living and income. Inflation has affected growth in real income, thereby curtailing consumers’ purchasing power.
While nominal earnings continue to rise due to labour market tightening, real earnings have been on a broad downward trend since last year and more particularly since the advent of Russia-Ukraine war, according to Akur Barua – an economist with Deloitte. Barua believes that consumers will continue to substitute some items for cheaper ones, while reining in spending on discretionary items.
“Since essential items such as groceries are more difficult to substitute and with the prices of even cheaper substitutes going up, consumers, especially low-income ones, will need to cut other types of purchases,” he noted.
Consumers lose purchasing power when prices increase, and similarly gain purchasing power when prices decrease. Normally, the purchasing power depends on the amount of income a person makes adjusted for inflation.