Inflation, levies dim employment earnings outlook

A fruit and vegetables trader: Food takes up the largest share of the basket of goods that is used to calculate inflation, making it the main driver of the cost of living. PHOTO | FILE

What you need to know:

  • Average inflation since January has been above last year’s 4.69pc, rising to 19-month high in April to hit low-income earners hard
  • This erosion of buying power comes as the government pushes for additional deductions
  • Workers will be looking forward to pay adjustments by the State during today’s Labour Day celebrations, to cushion them from the rise

A relentless rise in inflation to a 19-month-high in April, coupled with a raft of newly-introduced statutory deductions, risk eroding the Kenyan workers’ take-home this year, reversing gains from 2018 when employment earnings were above the cost of living.

Data by the Economic Survey 2019 shows that inflation-adjusted pay — technically known as real wage — rose by 3.2 percent in 2018, which was an improvement from the previous year when formal sector employees took a pay cut of 2.9 per cent when their wages were adjusted for inflation.

Real wage ordinarily offers the most accurate indicator of workers’ ability to purchase goods and services based on prevailing prices.

Average inflation since January has been above last year’s 4.69 per cent, hitting a 19-month high of 6.58 per cent last month. The rise, unless matched with a faster rise in wage earnings, risks leaving workers worse-off this year.

“Between March and April 2019, the food and non-alcoholic drinks index increased by 6.86 per cent. This increase was mainly due to drought conditions which prevailed in the better part of April,” Kenya National Bureau of Statistics (KNBS) said yesterday.

Inflation figures

The latest inflation figure means that a basket of goods that Sh10,000 could buy last year now requires additional Sh658.

This erosion of buying power comes as the government pushes for additional deductions for the National Social Security Fund (NSSF) contributions and the new housing levy, which will take 1.5 percent bite off workers gross pay.

According to the latest inflation figures, a kilo of sukumawiki now costs 20.4 percent more than it did in April last year while a similar quantity of Irish potatoes now costs 45.4 percent more.

Kerosene, used for cooking in poor households, is now 31.9 per cent costlier.

Electricity prices have also risen by 4.5 percent, meaning that every shilling a worker earns has to go the extra mile to meet basic needs such as food and creature comforts like lighting and cooking.

Workers in the agricultural sector, the second largest employer after education, are the most exposed to the knocks of inflation and levies.

Half of the people earning below Sh10,000 work in agriculture, despite the sector being Kenya’s economic backbone.

The KNBS data shows that 11,025 out of the 23,639 people in this bottom-wage bracket are employed in agriculture, forestry and fishing.

More than half (60 per cent) of workers in this sector are living on wages of below Sh25,000 a month. What is worrying is that an increase in deductions will further narrow their disposable incomes, subsequently reducing their ability to purchase goods and pay for services based on the prevailing prices.

In 2017, workers felt the same impact when inflation raced past salary increments and cut real income by 2.7 per cent.

Pay adjustments

Workers will be looking forward to pay adjustments by the State during today’s Labour Day celebrations, to cushion them from the rise in the cost of essential commodities.

Employers, through the Federation of Kenya Employers (FKE), have cautioned that wage increases and increased deductions such as the housing levy will increase the cost of doing business and trigger retrenchment.

The federation last month cautioned that many of the employers in the manufacturing, banking and agricultural sectors were facing tough financial times and job losses were eminent.

Slowest growth

Last year, the pace of growth in new jobs was the slowest since 2012.

The government is pushing to effect 1.5 per cent deductions from workers’ salary to fund housing project that targets 500,000 houses in the next five years.

This will further eat into the workers’ salaries. The State had in April directed employers to start deducting the levy from all employees in the public and private sector beginning on 9th of this month but were barred by a court injunction.

The Labour Court issued fresh orders temporarily stopping the onset of the deductions. The mention of the case is slated for May 20.

If the court gives the green light to the deductions, workers’ disposable incomes will be squeezed further to fund the housing project.

To qualify for a house, workers will be subjected to a lottery scheme, according to Housing Principal Secretary Charles Hinga.

The Central Organisation of Trade Unions (Cotu) Secretary-General Francis Atwoli said in a pre-Labour Day meeting with shop stewards that the union will not accept the levy if not accompanied by salary increments.

"I told the government that they should give us a 15 percent wage increase in exchange for the implementation of the new levy," said Mr Atwoli.

NSSF contributions

Another concern for workers will be increased NSSF contributions. NSSF revealed in March that it is in out-of-court talks with unions to unlock a dispute that could see retirement deductions rise to Sh1,080 from the current Sh200 and increase every year for the next five years.

The NSSF Board of Trustees’ chairman Julius Karangi said in a March interview that the entity was in discussions with Cotu and the FKE to raise the deductions “in the course of this year”.

“There were a few issues, but whatever concerns were there have been sorted. It is just a matter of sitting down and operationalising the Act,” he said.

If implemented, the stalled NSSF Act 2013 will see workers compelled to save more for retirement while employers will face increased compliance costs.

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