Editorial: New inflation figures must come with policy actions

The unravelling of new figures indicating that the rate at which prices are rising in the economy stands at a considerably low level of 6.6 per cent must be flattering to millions of Kenyans.

Coming at a time when millions of Kenyans are feeling the real weight of the cost of living, these figures are bound to be frowned upon by many consumers.

The bureau of statistics embarked on construction of a new inflation index nearly two years ago with the structural changes in the economy as its main driver.

Proponents of the new index have for instance argued that the heavy weighting of food and energy in the old index does not reflect the reality of how households spend their hard earned cash.

Food, for instance, has been traditionally accorded a heavy weighting under the old formula taking up 31 per cent of the index.

Together, food, alcoholic drinks, transport and energy account for more than half of the items in the basket of goods and services that make up the index.

Proponents of the new index have argued that aggregation prices using arithmetic mean bear an upward bias for the computed index and should be abandoned.

Besides, the argument goes; the basket of goods and services in the index is outdated since consumer tastes have changed since it was last constructed.

It has also been argued that heavy weighting of food, transport and energy has exposed the inflation index to the volatility that is associated with the pricing of the items – denying consumers of the data the insight they need to make decisions.

Businesspeople and some policy makers have for selfish reasons argued that inflation figures that are heavily weighted in favour of food and alcoholic drinks and energy is the reason Kenya stands alone in East Africa as the country with an average annual inflation figure of more than 25 per cent.

Such high level inflation, they argue, is detrimental to the country’s economic interest as it is likely to catch the attention of any investor looking for business opportunities in the region.

Kenyan National Bureau of Statistics (KNBS) argues that the change is in line with the best practices and as recommended by the ILO CPI manual and started collecting data for the new index in February.

Though the plan was to build up the data over a period of one year to facilitate release of year on year figures, additional pressure from key policy makers – including the Central Bank of Kenya has prompted the bureau to publish the two figures concurrently beginning last month.

What Kenyans will find shocking in the new index is perhaps how far the numbers churned out by the bureau will differ with the real weight of price increases they will be feeling on their backs anytime in future.

This is because the new consumer price index comes with a heavier weighting for items such as house rents that only change over time and drastically cuts back the weighting of items such as food, alcoholic drinks, energy and transport that the majority of Kenyans will confess takes a significant proportion of their monthly spends.