There has been a national public outcry on the high cost of living and harsh economic times experienced in the country. President Uhuru Kenyatta made full re-opening of our economy on 20th October 2021 but we have recorded slow economic growth rate.
The rate of inflation in the month of January has dropped to 5.39 per cent compared to December inflation rate of 5.73 per cent as measured by consumer price index.
“The overall year on year inflation rate as measured by the Consumer Price Index (CPI) was 5.39 per cent in January 2022. This was mainly due to an increase in prices of commodities under; food and non-alcoholic beverages (8.80 per cent) ; housing , water, electricity, gas and other fuels (5.11 per cent) between January 2021 and January 2022,” Kenya National Bureau of Statistics Report.
The Consumer Price Index increased by 0.31 per cent from an index of 118.274 in December 2021 to 118.642 in January 2022. The month-to-month Food and Non-Alcoholic Beverages Index increased by 1.07 per cent between December 2021 and January 2022. The increase in the Consumer Price Index was attributed by the increase price of some food commodities that outweighed the price of other food items.
Why is the inflation rate not stable
The fiscal policy through government spending and taxation measures by government affects inflation rate. The government has been spending on mega infrastructure projects increasing the money supply in the economy. This has attributed to rise in inflation rate over the past one year. The high taxation measures to finance the deficit budget; excise duty, VAT, fuel levy, customs duty as per Finance Bill 2021 have increased prices of goods and services in the country.
The monetary policy implemented by Central Bank of Kenya also affects inflation rate. When the Central Bank buys long term securities from commercial banks and institutions to spur economic growth the money supply increases. This causes the general increase of prices of goods and services because more money is in circulation in the economy.
Furthermore, the shilling’s depreciation in value against the dollar over time makes it difficult to balance international trade. Importers of goods have to pay more in dollars when buying goods because the shilling has lost value.
High fuel prices in Kenya have driven the cost of production high leading to increase in the prices of goods and services. Energy and petroleum Authority reviews cost of fuel monthly and the prices are not stable. EPRA maintained the fuel prices for petroleum products in this month’s review; with one litre of petrol retailing at Ksh 129.72 in Nairobi, Kerosene Ksh 103.54, diesel Ksh 110.60.
Effects of inflation
The high inflation rate experienced in the country for the past six months has affected the purchasing power of businesses and consumers. Value of the shilling has depreciated; 1USD is exchanging at Ksh 113.60 at foreign exchange. Commercial banks are lending at low weighted average interest rate of 12.12 per cent as at October 2021 driving lending by businesses and consumers hence increase in money supply in the economy. There are economists of the school of thought that during high inflation rate capital is easily accessible to finance and grow businesses which in turn create employment opportunities in Kenya.
The Big question: Has inflation helped create employment opportunities in Kenya over the past one year or more Kenyans lost their jobs and sources of income?
KNBS data show more than 738,000 Kenyans lost their jobs in 2021. Well do we blame covid 19 pandemic or high inflation rate or the government?
Inflation affects the interest rate of government bonds, corporate bonds, money market funds and many more investments. When the rate of inflation goes up it reduces the interest rate on bonds and money market funds hence lower yields than expected.
How does the Government control inflation
During Jamhuri Day Celebrations at Uhuru Gardens on 12th December 2021, President Uhuru Kenyatta directed reduction in the cost of electricity by 30 percent to be implemented in two phases. In January 2022 cost of electricity was cut by 15 percent. This will reduce the cost of production leading to low costs of goods and services.
Fuel Prices for the period 15th December 2021 to 14th January remained the same as the previous cycle. The Government utilized the Petroleum Levy to cushion consumers from the high fuel prices that could have affected the price of basic commodities.
How to beat inflation rate
Inflation reduces the value of savings over time because prices of goods and services go up leading to lower purchasing power. When you keep your money in cash or Bank deposit account earning zero interest its value reduces.
To beat inflation invest in investment opportunities which earn higher interest (returns) than the rate of inflation. Invest in company stocks, Money Market Funds, saccos, government bonds with higher yields of 10 percent to increase value of your money. Platforms like Hisa App that allow you to invest in the US stock markets are a good example or ways to try and beat inflation.