Kenyans w*rned to prepare for higher food costs

Thursday, February 8th, 2024 04:07 | By
A woman comparing maize flour prices at a supermarket in Nairobi recently. PHOTO/Print
A woman comparing maize flour prices at a supermarket in Nairobi recently. PHOTO/Print

Kenyans should prepare for higher food prices despite hopes that recent rains would alleviate the situation.

According to the central bank’s Monetary Policy Committee (MPC), overall inflation has remained sticky with fuel, food, non-food and non-fuel components increasing even in January.

A survey carried out ahead of the policy committee by the Central Bank of Kenya (CBK) had grim findings on food inflation for a country that is a net importer of foodstuff.

“The Survey of the agriculture sector conducted ahead of the MPC Meeting revealed that respondents expected inflation to increase in the next three months, on account of high import costs, partly due to the exchange rate depreciation,” said CBK.

A surge in the prices of foodstuff could be disastrous for Kenyans as energy costs continue to increase on the back of new levies and taxes.

According to CBK governor Kamau Thugge who chairs the MPC, overall inflation increased from 6.6 per cent to 6.9 per cent in January pointing to an elevated pressure on consumers based on commodities. Inflation is the measure of annual changes in the cost of living.

“What drove the surge was food inflation, which increased from 7.7 per cent to 7.9 per cent and fuel, which accelerated from 13.7 per cent to 14.3 per cent,” Thugge said during his post-MPC presser, observing that food was the biggest contributor adding three per cent points to the rate in January.

Kenya’s food imports include cereals, fats and oils, sugar and grains. Vegetables, fruit, coffee, tea, meat, milk, eggs, and alcoholic and soft drinks are also on the list of imports according to the Kenya National Bureau of Statistics (KNBS).

While the country produces many of these, but not enough to meet the needs of Kenyans, leading to imports from more than 120 countries, according to the World Integrated Trade Solutions dashboard run by United Nations agencies and the World Bank.

The board estimates that the country’s imports were valued at Sh2.49 trillion in 2022. Of this, the value of food and beverages was Sh253.7 billion.

Banking on imports to feed the nation, Kenyans are forking out more to buy basic commodities as the shilling remains weak.

Kenya is a net importer of food, and with the shilling struggling against other world currencies currently trading at 162 against the dollar, it is certain that imported foodstuff will continue to be costly.

Further, despite heavy rainfalls, Kenyans may not see a drop in food prices any time soon, with gains from good rains being eroded by weak shilling and high energy costs, particularly electricity.

Inflation from non-vegetable items which Kenya mainly imports rose from four per cent to 4.3 per cent points, with onion prices rising by more than half to 52 per cent, carrots by 60 per cent and potatoes by 10 per cent.

Food items

The price hikes are even more pronounced for certain food items. Over the past year, the price of carrots has soared by 57.2 per cent, onions by 51 per cent, and even sugar, a staple in many households, has risen by 32.1 per cent.

Other key food items such as beef with bones, tomatoes, cabbages, potatoes, kale, and fresh unpacked cow milk have also seen considerable price increases, ranging from 15.3 per cent to as low as 0.6 per cent.

Tea, which is a major contributor to the strengthening of the shilling, has decreased by 16 per cent since the start of the year.

Floods also wreaked havoc in rice-producing areas which indicates lower production of the commodity due to the floods. This may occasion more imports for a commodity which has become a Kenyan staple almost at par with maize flour.

Resilient services

Overall however, the MPC pointed out that the economy is expected to remain strong in 2024, supported by the resilient services sector, the improved performance in agriculture, and the implementation of measures to boost economic activity in priority sectors.

The CEOs and the Market Perceptions Surveys, conducted ahead of the policy committee meeting also revealed improved optimism about business activity and economic growth prospects for the next 12 months.

Respondents attributed the optimism to improved performance of agriculture, easing global inflation, a resilient private sector, and focus by the Government on key sectors including agriculture, MSMEs, health, housing, and digital economy.

Nonetheless, respondents expressed concerns about weakened consumer demand, weakening of the Kenya shilling, and high-interest rates.

Kamau Thugge however highlighted that the recent stability in the local forex market is expected to bolster the value of the Kenyan currency.

In a move to safeguard the local unit from further depreciation, CBK raised its key lending rate by 50 basis points to 13 per cent on the previous day.

Thugge emphasised during the MPC meeting that the shilling has demonstrated stability in recent days, attributing this to CBK’s decision to increase the Central Bank Rate from 12.5 per cent to 13 per cent.

Acknowledging that the shilling exceeded its equilibrium target range, he said the apex bank remains committed to shielding the local unit from further devaluation.

“The current rate is elevated, but we anticipate stabilisation and a return to a rate consistent with robust macroeconomic fundamentals, thanks to the measures implemented by CBK and the expected inflows of foreign exchange,” said the chief banker.

In addition to foreign interest in Kenyan Treasury bills and bonds, the country has received financial backing from institutions such as the World Bank and the International Monetary Fund (IMF), bolstering its dollar reserves.

This inflationary pressure is however being felt across various sectors. The transport index, for instance, has risen by 10.6 per cent over the past year, increasing the cost of commuting and travel.

Basic utilities, including housing, water, electricity, gas, and other fuels, have seen a price increase of 9.7 per cent, adding to daily living expenses. Even the cost of food and non-alcoholic beverages, essential items for every household, has risen by 7.9 per cent.

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