Tables turn as inflation hits middle class the hardest

Middle-income households have been hit the hardest by the rising fuel and other utility costs over the last three months, highlighting the effect of increased motoring expenses on their monthly budgets.

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Inflation figures for August, September and October show that the increase in the cost of living was highest for the middle income segment compared to the lower and upper classes.

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“Higher fuel costs have had the biggest impact on the middle-income class who spend a significant portion of their income on their cars and transport,” said a statistician at KNBS involved in the compilation of the monthly inflation data.

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The overall inflation for October dropped to 4.14 per cent compared to 5.32 per cent in September, helped by easing food prices, to mark one year of steady monthly decline since November last year.

The middle-income class had traditionally enjoyed stability on the average cost of living compared to other classes until the trend was broken in August.

Before that, the lower and upper income households were the most exposed to inflationary pressures, according to KNBS data dating back to 2010 when the bureau started tracking the impact on different income groups.

The inflation rates stood at 4.16 for the lower class, five per cent for the middle class and 2.5 per cent for the upper class.

Falling food prices cushioned the lower income earners from the effects of higher fuel costs which have risen in the last two monthly reviews.

The bureau said the new trend could be a pointer that the spending and consumption habits of the middle income class were less influenced by pricing.

Middle income households also consume a broader basket of processed foods compared to the poor, meaning that any increases in the cost of raw materials and inputs like energy used in manufacturing and processing would eventually reach their shopping baskets.

Average super petrol prices in Nairobi were Sh106.48 in August, before rising to Sh108.95 in September and Sh115.26 in October, while diesel prices also rose, albeit at a slower pace.

It is within the period that inflation figures for the middle income class ranked higher than that for the poor.

While inflation rocked the budgets for the lower and middle income households at varying proportions, Nairobi’s rich families have consistently faced the least shocks on their average cost of living.

In September for instance, inflation for the upper income class was 2.5 per cent while the city’s average was 4.29 per cent.

David Owiro, a programme officer at the Institute of Economic Affairs, said that while food and petroleum prices were the biggest drivers of inflation, the overall impact on any income group depended on the actual consumption of each.

“Lower income households spend the biggest proportion of their incomes on food, meaning that though the overall cost of living has been edging higher, they are more cushioned by the easing food prices,” said Mr Owiro.

KNBS officials said the cost of living for the upper income households had relatively remained stable over time because its shopping basket is able to absorb shocks more easily.

“The wide basket of goods and services that they consume and the relatively bigger income offers them room to absorb price shocks,” he said.

High-income earners also have the luxury to cut back on non-essential goods and services that they buy when prices jump to cushion them from soaring inflation.

KNBS defines low-income earners as those earning less than Sh23,670 monthly, middle income earners (between Sh23,671 and Sh120,000) and upper income as those earning more than Sh120,000.

The outlook for overall inflation is tending towards another fall with prices for maize, the key staple, expected to drop after a bumper harvest in the North Rift region.

The National Cereals and Produce Board has also revised the price of maize from Sh3,000 per 90-kilogramme bag to Sh2,800.

KNBS examines consumption data for Nairobi separately because it has increased its share of the national wealth in the past five years despite government efforts to encourage investments outside the city.

Official data shows that Nairobi accounted for 30 per cent or Sh231 billion of the country’s labour earnings and more than half of the top earners reside in the city.