The high cost of living in Kenya persists despite its decline in inflation

• Kenyan inflation rate decreases to 7.9% in June, offering a brief respite for consumers facing rising costs. 
• Fluctuations in food, energy, and transportation prices contribute significantly to inflation, impacting household budgets. 
• While the decrease in inflation provides temporary relief, new tax collection procedures and rising energy expenses are expected to challenge Kenyans in the coming months.

Kenyans saw a brief reprieve in June when inflation dropped to 7.9% despite a rise in the cost of key goods. The cost of living has increased and household pressure from rising food costs has persisted. The indicator fell from 8% in May to 7% in June, making it one of the lowest readings in the previous 10 months.

The price fluctuations in food, energy, and transportation, which together account for nearly 57% of family budgets, were significant contributions to the inflation rates, according to statistics from the Kenya National Bureau of Statistics (KNBS).

“The month-to-month Food and Non-Alcoholic Beverages Index increased by 1.3 percent between May 2023 and June 2023, Notable, the prices for carrots, onions (leeks and bulbs), tomatoes and maize grain-loose increased by 9.0, 7.3, 6.4 and 5.5 percent, respectively during the same period,” KNBS director-general McDonald Obudho said on Friday.

Cabbages, potatoes, avocados, and kale (sukuma wiki) all had a reduction in price of 6.1, 4.6, 2.7, and 0.3%, respectively. The Kenyan government opened a fresh duty-free importing window to protect consumers as the price of sugar continued to climb due to local cane shortages. This decision is anticipated to stop additional price increases for the sweetener.

The alleviation, meanwhile, is anticipated to last just a short while, since Kenyans will be severely impacted by the State’s new tax collection procedures outlined in the Finance Act, which President William Ruto signed into law on Monday.

Consumer prices unexpectedly increased in May, forcing the Central Bank to convene an early meeting that boosted interest rates one month earlier than planned.

During their meeting on Monday, which was convened a month early, CBK officials increased the benchmark lending rate by 100 basis points to 10.50% the highest level since 2016. Now that the Energy and Petroleum Regulatory Authority (EPRA) has started to implement the 16% VAT on fuel, Kenyans will have to deal with rising energy expenses.

This is in accordance with the Finance Act of 2023, which raised the VAT on gasoline up from 8%. According to Kamau Thugge, the new governor of the CBK, the high inflation is expected to last for a few months. By predicting that the inflation rate will decline by the end of August or the beginning of September 2023, the Central Bank implied that Kenyans should prepare for a challenging month.

As Kenya continues to be a net importer, further shilling weakness is also anticipated to drive up the cost of commodities. Amid sustained currency demand from importers and the effects of growing inflation, the shilling is predicted to stay weak with estimates for additional declines in the medium term.

The cost of inputs for businesses will increase as a result of importers having to spend more money bringing in commodities as raw materials for manufacturing.

Normally, manufacturers and merchants recuperate more costs by raising prices, which results in higher prices for consumers. Petroleum goods, equipment, medicines, machinery, medical supplies, vegetable oil, vehicles, wheat, and clothes are among Kenya’s top imports. Further reflecting the effects of the stronger dollar on household budgets, the depreciation of the shilling is also expected to boost electricity prices through increased foreign exchange fees on power bills.