Kenyans start the new year with hope that inflation will decline and offer some relief

By Today Financial News Reporter

It is Saturday evening in down town Nairobi and human traffic is heavy as usual. It is business as usual as city dwellers jostle to board matatus back to their homes. They are not excited that tomorrow is Christmas day.Maize trade. Food prices have remained high

The story is repeated a week later on New Year eve. Most people are calm though deep within is a sense of frustrations occasioned by the high cost of living that has reduced their purchasing power.

Traders who had hoped to cash on the holidays to make some profit were disappointed by the low sales as most people stayed clear of luxuries associated with the festivities choosing their purchases very carefully.

“We thought people would come to buy clothes as is common during Christmas but his year, things have been different. Few customers have turned up,” laments Gladys Wanjiru told Today Financial News in an interview.

“Even those turning up are lamenting that prices are too high and our efforts to justify the prices due to the depreciating shilling has not helped us.”

Most people interviewed expressed fears that the high cost of living occasioned by high inflation rate that declined marginally from 19.7 per cent to 18.7 per cent in November would continue to wreck havoc.

“We are no longer able to budget for anything nowadays. Prices keep on rising until we have lost count. We are trying to cope but with difficulties,” laments Ms Janet Kambua, a single mother of two.

Kambua is not convinced that prices will stabilise in the New Year and if they do, it would be at a higher level that is out of reach for most Kenyans and especially the poor living on less than a dollar a day.

Despite assurance from the government and the International Monetary Fund (IMF) that inflation will decline to a single digit by the end of the year is not convincing as high food prices have persisted despite increased supply.

“This Christmas comes at a time when prices of basic commodities have risen putting a financial strain on many families,” said President Mwai Kibaki on the eve of Christmas day.

“I, remain optimistic that the measures the government is putting in place to cushion wananchi from the high inflationary pressures will yield fruit and lower the inflation rate and eventually reduce the cost of living.”

According to the World Bank, high inflation tends to hurt the poor disproportionately especially when it is driven by high food and fuel prices as the poor spend a significant amount of their income on food and transport.

“Food inflation remains the driver of overall inflation, and the situation is particularly severe for maize and sugar, where Kenya’s policies have actually contributed to rising prices,” says the bank in its recent economic update for Kenya.

According to the bank, Kenya are paying high prices for maize due to distortions in the subsector where only a few producers benefit. By July last year, Kenyans were paying $45 (Sh4, 000).

They were also paying about 70 per cent above the world market prices due to inefficiencies in the entire supply chain.

“Kenya’s record high inflation in the second half of 2011 is strongly influenced by rising sugar prices,” said the report.

“Today, Kenyans pay about twice as much for sugar as Europeans, even though the drought did not affect sugar producing areas.”

The report says a number of well connected businessmen benefit from the high prices which they manipulate through their control of import licenses.

Both the government and the IMF insists that inflation would decline to seven per cent by the end of this year it is not clear whether food prices would drop to the levels witnessed early last year.

“With the return of more favorable weather conditions, continued investments to boost the country’s medium-term prospects, and sustained efforts to ensure a smooth and effective implementation of the new Constitution, economic expansion is projected to accelerate next year, with GDP growth reaching about 5.5 percent,” said Mr Domenico Fanizza who headed an IMF mission to Kenya in October last year.

“The implementation of tight monetary and fiscal policies to contain domestic demand pressures should also allow for a steady decline in inflation to 7 percent by end-2012.”