Inflation and its change in priorities


Financial distress and inflation have the power to change the course of history. All around the world stocks are falling, currencies are losing value, fuel is even becoming more valuable and prices of basic commodities are going up. As a citizen, you could ask yourself why is this so? People will attribute this to inflation that we hear about all the time.

Latest data from the Kenya National Bureau of Statistics (KNBS) shows the rate of inflation from the month of July 2022 has increased to 8.3 percent from 7.9 percent last month. The statistics bureau attributes the increase to rise in basic food commodities which rose by 15.3 percent when compared to July last year. It excluded cooking oil and wheat products from the list of the selected commodities. Cooking oil prices have shot up due to disruption in the supply of palm oil from Source markets in Indonesia and Malaysia while wheat products have risen drastically owing to the Russia- Ukraine war.

So inflation is not all about your purchasing power nor the money in your bank. It causes a chain reaction across all borders. Today our world is interconnected in so many ways. It’s close and there is free flow of trade but will it remain this way after the financial crisis? By mentioning financial crisis, I mean businesses are struggling to pay their bills and financial institutions lack the cash or convertible assets needed to fund projects. According to recent reports from KRA, Kenyans are defaulting to pay off their bank loans as of April 2022 and this estimates to 482 billion. So much for the cost of inflation on the ground Kenyans are facing, huh!

The scales of borrowing in the country has gone up significantly and the debt ceiling in the country is at 9 trillion according to the Treasury. So Jubilee Government got in power and a recent directory by the International Monetary Fund (IMF) demands Kenya to end the fuel subsidy by October. This is a new loan requirement if Kenya is to borrow again but what does this mean for Kenyans? Petroleum prices will surpass the 200KES threshold thus resulting to an increase in the prices of goods and services.

When you look at the energy sector for instance, fuel accounts for 20% of Kenya’s import bill. On 15th June 2022, Energy and Petroleum Regulatory Agency (EPRA), increased 9KES of fuel price per litre. This is to help contain the cost of fuel subsidy the government is giving Kenyans.

This is compared to countries such as Uganda, South Africa and Zambia.
How is this effect going to change the priorities on Kenyans? First of all, fuel increase will cause an increase in fare prices. People living below a dollar a day will have to cut costs and walk to work and for those that are lucky to have bicycles will have to cycle to work too because the prices of fuel they can’t afford to fill up their vehicles.

Another instance is, the liquefied gas we use for cooking will become pricey for low and middle income individuals. This will cause a shift and more people will move to using coal resulting to a climate risk as advised by the climate goal experts. We will be making a u- turn on green promises and be pushed to lean on cheaper energy sources like coal even if it means polluting the earth and accelerating climate change.

Another change is, other people will choose to buy less from what they are used to. For example, If they are used to buying a litre of kerosene, they’ll have to buy half or a quarter of it and this is more costly. Kenyans commented about the cost of living and some of them said that it has pushed them to eating two meals a day just to cut on costs from the not enough salaries they earn so as to payoff their debts first that’s weighing them.

Recently we saw the plight of Kenyans on social media lamenting on how the price of our staple food, ‘ugali’ has increasingly gone up. On July 20th 2022, the President addressed this matter. He confirmed that the beloved food product will retail from 205Ksh to 100ksh for a 2kg Maize flour. This is just another move by the government to cushion the vulnerable households by lowering the cost of living through the Maize Flour Subsidy Programme.

In an interview with economist Nyaga Mwaura, to get his thoughts on the Governments move to invest more on infrastructure if it will help with inflation and his sentiments. He argues that infrastructure can aid production; for example, improved roads, bridges, and ports may encourage business development and reduce some operational costs. This reduction on operational costs and ease of doing business would boost the supply side of the economy reducing inflationary pressures.

He advises that increasing taxes and reducing government spending is the appropriate solution that some governments have used to revive the economy. So living in a country 56 million people, it’s going to take a while to recover from the recession we are experiencing.

Published by New Normal Conversations with Eve

Focused on enlightening people with the right news that's data driven

2 thoughts on “Inflation and its change in priorities

  1. Totally when we reduce the imports and produce our own our currency will be stronger. Otherwise tutaenda kununua mkate na pesa imejaa kwa wheelbarrow. Like Zimbabwe where they had to switch and purchase with dollars when their currency collapsed.

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