Nairobi’s poor hit hardest by inflation in last nine months

Nairobi’s low income groups have been the worst hit by inflation in the past nine months, new data from the Kenya National Bureau of Statistics (KNBS) shows.

Last December low-income households in Nairobi had an inflation level of 7.65 per cent against 5.62 per cent and 5.97 per cent per cent for upper and middle income households, respectively.

“Both the rich and the poor are affected by inflation but when prices of basic goods go up, the poor are most affected because most of them don’t even have jobs. If they had jobs inflation would be less of a problem,” said Joseph Kieyah, principal analyst and head of the Private Sector Development Division at the Kenya Institute of Public Policy and Research (KIPPRA).

In March last year, low-income households had an inflation level of 3.16 per cent while upper and middle income homes had a price level of 2.94 and 3.56 per cent respectively, showing a reversal in fortunes.

The biggest increases in prices occurred when basic goods such as food were in short supply because the Inflation Index assigns a weight of 36.04 per cent to food items.

The poor in Nairobi, who mostly live in slums, bear a disproportionate effect from rising prices because most of their income, if not all, is spent on food.

A 2007 KNBS study showed that income of the bottom 20 per cent of the population was not enough to buy food, leave alone other basics.

“Even from casual observation the poor are suffering the most from high prices. That is why you are seeing increased crime. We have data showing that the poor pay 10 times more to access water than the rich,” Consumer Federation of Kenya (Cofek) chief executive officer Stephen Mutoro said.

KNBS identifies low income Nairobi households as those that spend less than Sh23,670 a month. The middle-income households spend between Sh23,671 and Sh119,999 while the upper-income group spends above Sh121,000 a month.

The new Valued Added Tax (VAT) Act 2013, which came into effect on September 2 last year, had the most impact on the rich whose level of inflation level nearly tripled.

The law brought many luxury items that were previously either exempted or zero-rated under the consumer tax. The goods affected were mostly consumed by the rich.

The change saw the overall inflation for the rich-income category jump from 2.38 per cent in August to 6.16 per cent in September, before moderating to 5.37 and 5.50 per cent in October and November, respectively.

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However, the rich still experienced lower inflation than the rest of the population in overall terms.

Caviar, pure-bred breeding horses, asses, mules and hinnies, and other types of horses — all a preserve of the rich — were previously exempt.

A survey by Ipsos-Synovate on the eve of the New Year shows that 70 per cent of Kenyans were concerned about the rising cost of living this year. A year ago, about half of Kenyans expected the cost of living to come down.

Prof Kieyah said that there should be a trade-off between inflation and unemployment but in Kenya inflation and joblessness go hand in hand.

“In the Kenyan case, you have inflation and unemployment rising at the same time. So where should the priority be?

‘‘It should be on tackling unemployment even if it leads to more inflation. If you have money, you can tolerate some good amount of inflation,” said Prof Kieyah.

However, central banks world over are more concerned with inflation, probably because of investors’ need for stable predictable prices.