Lower call charges ease pressure on cost of living

The fall in mobile airtime has reversed the inflation trend and pushed the cost of living measure to its lowest level this year.

Official data from the Kenya National Bureau of Statistics (KNBS) indicate that inflation dropped to 3.2 per cent in August down from 3.6 per cent in July.

The battle for control of Kenya’s mobile telephony market has seen the operators halve their tariffs as they race to defend and grow their subscriber numbers.

This deep cut helped to soften the blow of rising food prices such as that of wheat based products, milk and vegetables—which had analysts projecting higher inflation. 

“The food and non-alcoholic index went up 1.9 per cent between the months of July and August 2010…during the same period the communications index declined 23.5 per cent on account of significant falls in the cost of airtime,” said the bureau in a statement on Tuesday.

Bread makers increased prices for 400 grams loaf by at least four shillings to Sh36 citing a steep rise in global wheat prices following Russia’s ban on exports that came into force early last week.

This came amid a rally in other food items such as milk, potatoes and vegetables, wrecking household budgets that have been based on cheap food in recent months following increased supply from favourable weather.   

But the impact of the food inflation was muted by the significant fall in mobile phone tariffs, which had a bearing on the Consumer Price Index (CPI) despite accounting for 3.82 per cent of the index.

Food accounts for 36 per cent of the index. 

The fall in airtime started on August 18 when Zain Kenya—which was recently bought by India’s budget operator Bharti Airtel—halved its tariffs in an effort to gain competitive over its rivals Safaricom, Essar and Telkom Kenya.

But Zain rivals followed with similar tariff cuts to the delight of consumers.

Inflation dropped from a high of 17.9 per cent in September to a single digit regime after the government introduced a new method of computation.

Policy makers reckon the low inflation number should enhance the country’s investment credentials arguing that the previous sky high inflation -- which was the highest in the region -- had become the biggest obstacle to selling Kenya as a favourable investment destination.

It made investors view the country as a high-cost production location, they said, giving neighbouring Uganda and Tanzania with an average annual inflation rate of about seven per cent competitive advantage.

Last month, Uganda saw its inflation drop to a six year low to 1.7 per cent while Tanzania’s rose to 12.1 per cent in August to 10.9 per cent.