Rising food and fuel prices shake household budgets

A sharp rise in food and fuel prices points to deeper pain for Kenyan households, especially low-income ones, whose already overstretched budgets are being juggled for survival.

The cost of basic food items -- including maize flour, milk, potatoes and tomatoes -- has been rising as traders report shortages, partly due to the prolonged drought.

The government’s regulated fuel prices have also increased for the second successive month, adding to the inflationary pressure facing the economy.

“Obviously, Kenyans are going to feel inflationary pressure with the rising cost of basic commodities as well as fuel prices,” Tony Watima, an economist, told the Business Daily.

The price of maize flour -- a staple in most Kenyan homes -- has gone up by about 40 percent in a span of just two weeks, hitting a high of Sh119 for a two kilo packet.

Millers have attributed the rise to shortage of maize in the market. A 90 kilogramme bag of maize was retailing at a high of Sh3,200 last week from Sh2,000 earlier, with processors anticipating that prices would continue to rise.

Cost of milk

The cost of milk has also shot up with processors citing a supply shortage from farmers as a result of the ongoing drought, which has seen a half litre packet go up by Sh5 to retail at Sh55.

A spot check around Nairobi also found that a kilo of tomatoes was going for about Sh100 up from Sh70. The cost of vegetables has also gone up.

The Energy Regulatory Commission (ERC) on Sunday announced new prices for petrol, diesel and kerosene, which rose to hit Sh106.60, 102.13 and Sh102.22 respectively.

The monthly review saw the prices of both petrol and diesel go up by Sh5 while the cost of kerosene, which is mainly used by majority of poor households, went up by Sh2.76.

"Changes in this month’s prices have been as a consequence of the average landed cost of imported super petrol increasing by 9.14 percent from $568.55 per tonne in February 2019 to $620.54 per tonne in March 2019," said the ERC.

The rise in fuel prices is likely to trigger an increase in transportation and industrial production costs, with consumers expected to shoulder the burden.

Fuel inflation

Fuel inflation, which stood at 12.11 percent in January is also likely to rise.

Brent crude oil has been rising since December from $59.60 per barrel to $68.60 at the end of March. On Monday, it was being quoted at $70.61, signalling a potential rise in local prices if the trend persists.

This is likely to pile pressure on overall inflation, which in March shot to a two-month high of 4.35 percent from 4.14 percent in February, with the Kenya National Bureau of Statistics (KNBS) attributing the increase to the high cost of food.

At 4.35 percent, the March inflation rate is within the Central Bank of Kenya’s (CBK) preferred range of between 2.5 percent and 7.5 percent although extreme rises in the cost of food and fuel commodities may result in a breach.

Food takes up the largest share (36 percent) of the basket of goods that is used to calculate inflation, making it the main driver of the cost of living.

According to the KNBS, the cost of food in Kenya increased 2.84 percent last month from 1.09 percent a month earlier, reflecting the sharp rise in the cost of food items.

Anxiety

The delayed onset of the traditional March-April-May long rains continues to cause anxiety in the economy, with the World Bank projecting the pace of economic growth to slow down to 5.7 percent.

Ladisy Chengula, lead agriculture economist at the World Bank, said the country’s agriculture remains significantly exposed to climate given the low levels of investment in projects such as irrigation.

“Depending on rain will not take the economy anywhere. More disastrous years could be coming,” he said during the release of an economic update for Kenya recently.

Mr Watima said the government may consider tax cuts on basic food items and introduce fuel subsidy to cushion consumers, but noted that such strategies have not been very effective in many African countries.