Economy

Inflation, salary squeeze dims Labour Day festival

jacqueline mugo

Federation of Kenyan Employers Executive Director Jacqueline Mugo. FILE PHOTO | NMG

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Summary

  • Disposable incomes will fall in 2022 as rising inflation and tax increases hit families, posing a headache to the State ahead of Labour Day on Sunday.
  • Workers will be keen to see whether the State will buck the trend where it has failed to review minimum wages over the past four years amid a sharp jump in THE prices of essential items.
  • Kenya National Bureau of Statistics (KNBS) data released on Thursday show that inflation hit a seven-month high OF 6.74 percent in April, from 5.6 percent in March.

Workers are facing their most painful squeeze in over a decade after a day in which the cost of living crisis escalated and employers warned of a longer freeze in pay increases.

Employers say real wages, adjusted for inflation, will take longer to recover from the pandemic-induced economic contraction in 2020.

This means that disposable incomes will fall in 2022 as rising inflation and tax increases hit families, posing a headache to the State ahead of Labour Day on Sunday.

Workers will be keen to see whether the State will buck the trend where it has failed to review minimum wages over the past four years amid a sharp jump in THE prices of essential items, including soap, cooking gas and fuel.

Kenya National Bureau of Statistics (KNBS) data released on Thursday show that inflation hit a seven-month high OF 6.74 percent in April, from 5.6 percent in March, straining household budgets at a time when average private-sector pay grew at the slowest pace in a decade.

The Federation of Kenya Employers (FKE) on Thursday said workers would normally get compensated for inflation when the productivity of companies starts growing faster than the cost of living measure.

FKE executive director Jacqueline Mugo, however, said productivity in Kenya was “not just low, but is actually decreasing”, citing findings of the 2022 Economic Position Paper on Wages by the Ministry of Labour.

“Until the global political developments affecting supply chains and the challenging situation for enterprises in Kenya improves, employers are not in a position to unilaterally increase wages in real terms,” Ms Mugo told the Business Daily on Thursday via WhatsApp.

“Employers in Kenya are struggling and still trying to grapple with the negative impact of the Covid-19 pandemic. The situation of companies is being worsened by the disruptions in the global supply chains as a result of the ongoing geopolitical conflicts.”

The prices of essential items, including soap, cooking gas and cooking oil as well as food items such as wheat flour and onions, have risen by up to 41 percent in the past year.

This has forced many households, especially in the low-income segment, to reduce their shopping basket in an environment where firms have frozen salaries as they recover from Covid-19 economic hardships.

The rise in the cost of essential commodities could force workers to cut back on non-essential items such as beer and airtime, ultimately hurting firms like East Africa Breweries Limited (EABL) #ticker:EABL and Safaricom #ticker:SCOM .

Cooking oil prices jumped the highest in April, with a litre averaging Sh351.99, a 41.66 percent climb compared with a year ago, the KNBS data shows.

It was followed by cooking gas for which refilling a 13 kilo cylinder cost 38.18 percent more to an average of Sh2,866. The price of a two-kilo packet of wheat flour jumped 24.72 percent to Sh160.70.

The rise in the cost of basic commodities emerges in a period when workers’ pay is yet to recover from the effects of Covid-19, which triggered layoffs and pay cuts. The average earnings for workers in the private sector grew at the slowest pace in a decade in 2020 as pandemic-hit firms moved to slash salaries and adopt unpaid leave policies to contain costs.

Companies raised average monthly pay by 3.82 percent to Sh67,490 in the year ended June 2020, a steep drop from the 8.16 percent raise to Sh65,006 the year before.

KNBS is yet to release the 2021 data, but employers say it will take years for pay raises to return to pre-Covid levels, with firms struggling with elevated costs largely due to uncertainties related to the pandemic.

The country’s economic output — technically known as gross domestic product (GDP) — shrank 0.31 percent in 2020, the first annual contraction since 1992 when it slid 0.8 percent.

An analysis of Stanbic Bank Kenya’s Purchasing Managers Index (PMI) — based on feedback from about 400 corporate managers drawn various key industries in private sector — further suggests that the drop in real wages compared with the previous years has persisted last year.

The survey suggests that a few employers who have marginally raised salaries in the aftermath of the Covid disruptions did so to “motivate workers” without matching changes in the cost of living, with a vast majority of firms keeping pay unchanged.

“Employers usually try to adjust salaries in tandem with inflation, but this is proving a challenge. Since 2020, we have not been able to keep pace with increase in the cost of living when it comes to salaries,” a human resource director at one of the largest firms in the country said on condition of anonymity because he is not allowed to speak to the media.

Employers reckon that a raise in minimum wage, which has remained unchanged at Sh13,572 for the last three years, is not an option.

“We are appealing and pleading with the government not to increase the statutory minimum wages this year, but rather let companies negotiate wages with workers through collective bargaining agreements,” Ms Mugo said. “This way each individual company performance will be considered before making pay review decisions.”

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