Inflation Fears Rise as the Kenyan Shilling Hits an all-time Low of Ksh 116 Against the Dollar.

The Kenyan shilling has for the first time crossed the Sh116 mark against the dollar, triggering fears of a fresh round of inflationary pressure, which has become a political headache for the government that has recently been forced to offer fuel subsidies to defuse social tension.

The shilling closed trading at Sh116.1 to the dollar, compared to Tuesday’s Sh115.99 and has depreciated from Sh113.13 at the start of the year.

The weakening of the shilling has set the stage for costly imported goods such as cars, electronics, farm inputs and second-hand clothes, and electricity.

“The decline is due to the ongoing dollar shortage. Nothing has changed and we see it continuing to lose ground. CBK [Central Bank of Kenya] is also struggling to keep their reserves above the import cover,” said Kenneth Minjire, senior associate for debt and equity at stockbroker AIB-AXYS as quoted by business daily.

The shortage forced industrialists to start seeking dollars in advance as it puts a strain on supplier relations and the ability to negotiate favourable prices in spot markets.

Kenya imports a wide range of goods, including petroleum products, wheat, second-hand clothes, motor vehicles, vegetable oils and industrial machinery, whose costs are rising as the shilling weakens against the dollar.

This has seen manufacturers and importers transfer the additional shipping costs to consumers, upping inflationary pressure in an economy where households are grappling with expensive basic items like fuel, soap, cooking oil and food.

Consumer inflation rose to 6.47 per cent year-on-year in April from 5.56 per cent a month earlier, triggering a slowdown in customer demand.

The Treasury will also feel the heat of the weakening shilling as Kenya’s debt costs are also rising, a burden to taxpayers who are reeling from the mounting debts.

Demand for dollars locally has gone up significantly this year in line with surging imports following the full reopening of the economy, which has unleashed pent-up demand for both consumer and capital goods.

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