Kenya’s growth Prospects Positive, but Rising Inflation Greatest Risk

Kenya’s 2016 overall inflation has remained within the government target range besides changes in the prices of food items.

The government targets inflation in a range of 2.5 percent to 7.5 percent.

Food Inflation in the country has averaged at10.77 percent from 2010 until 2016, reaching an all-time high of 26.20 percent in October of 2011 and a record low of 1.44 percent in October of 2012.

According to Kenya National Bureau of Statistics, non-food-no-fuel (NFNF) inflation rose slightly in October attributed to mild demand pressures in the economy.

However, consumer prices increased 5.8 percent year-on-year in June of 2016, the highest figure since March 2016, driven by cost of food.

It is projected that food inflation will end at 5.90 percent in this quarter.

Data from Trading Economics state that the cost of food in Kenya increased 11.17 percent in November of 2016 over the same month in the previous year.

This increase has been attributed to a low-price environment for most agricultural commodities, farm balance sheets and a preference to reduce the cost of inputs, including seed technology, combined with an uncertain weather patterns.

According to the latest Kenya National Bureau of Statistics (KNBS) quarterly report, Kenya’s economy expanded by 6.2 percent in the second quarter compared to 5.9 percent in the same period in 2015. This growth was mainly supported by agriculture, forestry and fishing; transportation and storage; real estate; and wholesale and retail trade.

“Kenya continues to benefit from low fuel prices and good rains, a stable macroeconomic environment, and good monetary policy action, which has ensured inflation remained contained in the first half of 2016,” according to the World Bank October update.

Further, a study by the Institute of Economic Affairs (IEA-Kenya) on the Middle Class, the rise in inflation especially the rise in consumer goods has greatly affected their spending power. Thus leading to a decline in their numbers.

“The nominal wages for the upper limit grew from KES 67,380 in 2009 to KES 109,429 in 2015. However, due to inflation, the real wage dropped from KES 66, 026 in 2009 to KES 63, 834 in 2015. Consequently, the size of the middle class marginally reduced.  From 2009 to 2015, the number of individuals in the middle class as a share of total increased from 8.5% to 11% in 2015 based on the nominal income ranges. However, after accounting for inflation, the share reduced to 7% and 10.5% in 2009 and 2015 respectively,” reads part of the study findings.

According to 2015 KNBS data, tomatoes are nearly three times as expensive as they were a decade earlier. In 2005, they were retailing at Sh39.75 per kg. Now, you are looking at paying Sh107.31 for the same.

That’s nearly a 170 percent difference. Over that period, every year tomatoes have been 10.4 percent more expensive than they were the previous year. The same goes for carrots that were retailing at 28.05 shillings in 2005; 10 years later, they were nearly triple as much, at 75.44 shillings. That works out to a difference of almost 169 percent, and like tomatoes it means that every year, carrots are more than 10 percent more expensive than they were the previous year.

At the start of this year, the average market price for Irish potatoes stood at 72.32 shillings, up from 53.16 shillings at the same period in the year 2015. This was a 38.99 percentage increase. A 500-milliliter pack of milk retailed averagely at 54.25 shillings while the same quantity last year was going at 51.42, a 3.9 percentage increase.

Onions, dry beans and meat (beef with bones in this data set) are all nearly three times as expensive as they were a decade ago, with price increases of between 160-165 per cent. All the while, the average wage earnings per employee has had a much more modest increase over the same period of time – no wonder you may be struggling to make ends meet.

In 2017, its projected that inflation that has been impacting the commodities market will decline towards 5 percent.

“It looks like the inflation will remain at that level and will not drop quickly in November. In December, it might ease little more because of the excise tax that was implemented last year. On the whole inflation, it will remain currently where it is and ease towards 5 percent,” projects Dr. Patrick Njoroge the CBK Governor.

Yields in most crops have been hitting high records through 2016 and this trend may continue through 2017. Stocks of most agricultural raw materials will draw down next year after having accumulated inventory during a number of seasons this year.

Maize and wheat fall into the cereal market whose prices have fluctuated month after month, driven by high cost of production and the increase in petrol and diesel prices.

Here is a summary of how the Cereal market has been fairing on in 2016:

Economic Insight: Africa report on Economic risks for the year ahead, “Growth prospects remain divergent by region, with Central and West African economies struggling with weak commodity demand, but more diversified East African economies faring better.”

“Kenya’s growth outlook has improved in recent months, with the tourism sector recovering from the effects of previous terror attacks and travel advisory warnings, while the central bank has also been able to ease monetary policy in recent months. Kenyan economic growth is projected to reach 5.9% this year, before trending towards 7% over the medium term,” reads the report.