Remittances cushion consumers against inflationary pressures

Consumers were cushioned from inflationary pressures by remittances sent by Kenyans in the diaspora who shrugged off a tough economic year and managed to send more than Sh40 billion in 2009.

Kenyans abroad sent $609 million dollars or an equivalent of Sh47.1 billion despite the global economic crises whose adverse effects were largely felt in their countries of residence more than in their country of origin.

“Kenyan emigrants enhanced remittances inflow in 2009, mostly for consumption smoothing due to adverse effects of domestic shocks including the prolonged drought,” said Central Bank of Kenya (CBK) Director Research Department Charles Gitari through a statement.

The prolonged drought was the major cause of the inflation as it increased the prices of food.

Food constitutes 50.5 per cent of the consumer price index, a measure of cost of all goods and services to a typical consumer.

The drought saw inflation levels average 17 per cent. The inflation rate has, however ,gone down partly due to the Kenya National Bureau of Statistics (KNBS) changing the measurement method and the heavy rains in December last year.

The latest KNBS statistics indicate that since December, inflation has dropped to single digit levels and as of January, it stood at 4.7 per cent, down from the previous month’s 5.3 per cent.

The CBK says that it expects the remittances to improve as the markets in the west, where majority of Kenyans in the Diaspora reside, improve. Europe and the US constitute 82 per cent of Kenyan emigrants.

The Kenyan shilling oscillating at its current levels would also help Kenyans who are beneficiaries of the dollar and euro-denominated remittances.

For instance, the 2009 remittances were a slight reduction from 2008 which stood at $611 million dollars but the reduction was countered by the depreciation of the Kenyan shilling.

Whereas $611 sent in 2008 was worth Sh42.3 billion, last year’s remittances of $609 were worth $67 billion.

CBK says that this resilience will also benefit the real estate and equity markets.

Mr Eric Musau, an analyst with Renaissance Capitals says that last year was a challenge but also agrees that as the global economy rises, the diaspora dollars will flow back to their traditional development channels of property and stock markets.

“We already are seeing the construction sector pick up and as the job market globally recovers, more funds sent home will be used for development,” he says.

Inflation is likely to remain at single digit levels he adds.