Maize Flour And Sugar Among Commodities With High Increase In Prices

By Soko Directory Team / Published December 8, 2022 | 10:24 am

KEY POINTS

Inflation rose to 9.6 percent in October 2022, the highest since December 2017, before falling marginally to 9.5 percent in November 2022, even as price increases were partially muted by government subsidies on fuel, electricity, and maize.

KEY TAKEAWAYS

Products experiencing significant price increases in November 2022 included maize flour (32.2 percent y/y), sugar (23.2 percent y/y), beans (27.0 percent y/y), potatoes (37.2 percent y/y), cooking oil (18.8 percent y/y), diesel (46.1 percent y/y), kerosene (39.3 percent y/y), and petrol (36.4 percent y/y).

Shocks from global commodity markets and the regional drought pushed up inflation in 2022. The war in Ukraine and the long drought in East Africa have put upward pressures on food and fuel prices since early 2022.

Headline inflation started to accelerate from 5.1 percent y/y in February 2022 and has remained above the CBK’s upper bound target of 7.5 percent since June 2022.

Food, comprising one-third of the Consumer Price Index (CPI) basket, recorded significant increases in prices, contributing about sixty percent to the increase in headline inflation since February 2022.

Energy and core (which excludes food and energy prices) inflation have also trended upwards, reflecting partial pass-through of higher international oil prices, Shilling depreciation, and second-round effects of supply shocks.

The government has provided subsidies to mitigate the impact of rising inflation. High-frequency monitoring of households shows a rise in food insecurity, most severely in rural areas, and over half of households reduced their food consumption in June 2022.

Further, most households reported an increase in prices of essential food items, and over half of rural households reported being unable to access core staple food such as beans or maize response, the government announced a subsidy on maize meal in July 2022 and suspended the railway development levy and import declaration fee on imported maize.

Maize flour was subsidized from KSh 205 for a 2kg packet to KSh 105. The government has been subsidizing fuel prices, with fuel subsidies rising to the equivalent of 0.5 percent of GDP in FY2021/22.

In September 2022, the government removed subsidies on petrol and plans to gradually withdraw subsidies on diesel and kerosene. The subsidization of maize and fuels has helped to reduce inflation pressure from higher global commodity prices but at a significant fiscal cost.

The Central Bank of Kenya (CBK) has been tightening monetary policy to manage rising inflation. Since May 2022, the CBK has raised the policy rate thrice by a cumulative 175 basis points to reach 8.75 percent.

The latest increase was announced on November 23, 2022, when the Monetary Policy Committee (MPC) decided to further raise the policy rate by 50 basis points in view of sustained inflationary pressures and the elevated global risks and their potential impact on the domestic economy.

However, with the June through November 2022 inflation rates accelerating to multi-year high levels, the real policy rate has remained negative since June 2022.

About Soko Directory Team

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