Inflation rises as East Africa battles high food costs and polls anxiety

The East African region is facing a wave of inflation as disruptions in the global supply chain continue and prices of essential commodities rise.

In Kenya, the region’s largest economy, inflation hit 8.5 percent this week — the highest in 62 months —from 8.3 percent in July, on a surge in food and fuel prices.

The Kenya shilling also continued to tumble, partly blamed on jitters around the presidential election results dispute, which has seen former prime minister Raila Odinga challenge the victory of Deputy President William Ruto, who was pronounced president-elect on August 15.

The Azimio la Umoja One Kenya presidential candidate and his running mate Martha Karua filed a petition challenging the outcome of the presidential election on August 22, claiming the election was manipulated to favour Ruto. The Supreme Court is expected to issue a verdict on September 5.

Read: Anxiety in East Africa as Kenya Supreme Court settles election dispute

On August 31, the shilling had fallen 0.03 percent to Ksh120.05 against the US dollar as the apex court began hearing submissions by the petitioners challenging the declaration of Ruto as president-elect.

Foreign reserves had fallen to $7.6 billion— equivalent to 4.39 months of import cover — during the week ending on August 25, from $7.74 billion, equivalent to 4.46 months of import cover, during the week ending July 28.

This breaches the region’s convergence criteria that demands that countries maintain their foreign currency assets above 4.5 months’ worth of imports cover— which is one of the conditions for implementing a single currency regime.

In February, the shilling traded at Ksh113 against the US dollar.

Food, fuel prices

Foreign currency dealers at pan-African foreign exchange firm AZA Finance warned that the political instability in the country would continue to weigh heavily on the local currency in the coming days, possibly surpassing the Ksh120 level against the greenback. Market research report by property consultancy firm Knight Frank predicts that the Kenyan currency will depreciate a little further but stabilise by the fourth quarter (October-December).

Also read: More pain for Tanzanians as fuel prices soar

Besides the uncertainty in Kenya, the war in Ukraine has also triggered a spike in crude oil prices that have fuelled inflation in the region.

According to monthly data from the Kenya National Bureau of Statistics (KNBS), the country’s inflation figures have been on an upward trend from a low of 5.1 percent in February before Russia’s invasion of Ukraine disrupted supply chains, pushing up global energy and food prices.

The situation has been compounded by the removal of a government food subsidy that had seen the price of a two-kilogramme packet of maize flour fall to Ksh100 ($0.83) from Ksh240 ($2). On July 20, outgoing President Kenyatta announced the fifth stimulus package of his regime focusing on food subsidy to cushion households from hunger. The one-month subsidy elapsed after the General Election of August 9.

In August, oil-marketing companies warned of another fuel crisis due to the government’s failure to honour its obligations under the state-funded fuel subsidy programme. The marketers are demanding a huge Ksh65.06 billion ($542.16 million) from the government, an amount which has been in arrears for three consecutive cycles (June, July and August).

In Uganda, the monthly inflation as measured by Consumer Price Index for August increased to nine percent from 7.9 percent registered in July, despite government interventions to lessen the hardship.

The Uganda Bureau of Statistics (UBOS) blames the rise to high prices of foods like plantain (matooke), which has risen from Ush709 ($0.187) per kilograme to Ush802 ($0.212), compared with an average of Ush493 ($0.130) at the same period last year.

Transport costs

Aliziki K. Lubega, the UBOS Director of Economic Statistics, said the cost of transport, a direct result of higher fuel prices, had also increased from 7.3 percent in August 2021 to 8.7 percent in August this year.

“The rise in transport inflation is specifically attributed to long-distance bus fares, which increased to minus 9.5 percent, from minus 27.8 percent,” she said.

She added that monthly petrol inflation increased by 4.5 percent last month from the 7.6 rise registered in July.

Ms Lubega noted that solid fuels inflation increased to 4.7 percent from minus 0.8 percent in July and charcoal, which rose to 4.8 percent in August, from minus 0.7 percent the previous month.

Prices for fresh milk also rose from Ush1,825 (0.482) in July to Ush2,050 (0.542) per litre in August, UBOS report shows.

Other increases in the prices of food were noted in commodities like fish from Ush11,603 ($3.06) to Ush13,339 ($$3.527) per kilogramme; dry beans from Ush3,607 ($0.95) to Ush3,805 ($1.006); maize flour from Ush3,343 ($0.88) to Ush3,421 ($0.904); fresh cassava from Ush827 ($0.218) to Ush914 ($0.24); and green cabbages from Ush810 ($0.214) to Ush1,012 ($0.267).

This rise in inflation comes at a time when government intervention saw an increase in the central bank rate to nine percent in August, from 6.5 in June.

Read: Uganda increases key rate for third time in a row

The central bank also provided exceptional funding to maintain access to money by supervised financial institutions and aided borrowers that were affected by Covid-19 pandemic as they provided credit relief measures that permitted loan rescheduling for a year.

Other inventions are prioritising debt servicing and other statutory obligations and focused expenditure on growth by enhancing sectors with higher multiple effects in economy to support recovery, create jobs and have high impact on poverty reduction, Mr Ggoobi explained.

Globally, inflation in the Eurozone hit a record high of 9.1 percent in August fuelled by soaring energy costs exacerbated by the war in Ukraine.

The United Kingdom currently has the worst inflation of all the G7 countries, hitting 10.1 percent in the 12 months to July.

In the US Federal Reserve chairman Jerome Powell said on August 26 that the monetary policy could be kept tight ‘for some time’ to stem the rising inflation

The US central bank has so far overseen three consecutive rate increases of 75 basis points to deal with high inflation.

SOURCE


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