Drop in manufacturing costs signals minor cut in retail prices

Consumer prices could drop marginally in the first three months of the year following a slight decrease in the Producer Price Index (PPI) that captures changes in costs incurred by manufacturers.

Data from the Kenya National Bureau of Statistics (KNBS) for the fourth quarter of 2017 shows that the average cost of production decreased by 0.41 per cent in three months to December.

Theoretically, the drop is expected to be felt in the coming weeks when the produced goods finally enter the market.

Traditionally, manufacturers pass on cost to the consumers.

“The producer index decreased by 0.41 per cent from 119.52 per cent in September to 119.03 in December 2017,” KNBS indicated.

PPI, which is key economic number in developed economies captures price movement ahead of retail and is an early indicator of inflation.

According to the bureau, over the last three months manufacturing cost of furniture rose by eight per cent followed by manufacture of fabricated metal products which increased by 7.77 per cent.

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But the producer prices of food products, electricity and manufacture of other non-metallic mineral products declined during the period.

There was a decline in the food index during the quarter which was mainly due to lower producer prices of sugar and tea.