SME nostalgia as KNBS announces increase in Inflation

The overall year on year inflation rate as measured by the Consumer Price Index (CPI) was 6.32 per cent, in June 2021. This was mainly driven by rise in prices for commodities under: food and non-alcoholic beverages (8.46 per cent); housing, water, electricity, gas and other fuels (4.25 per cent); and transport (14.71 per cent) between June 2020 and June 2021. According to Focus Economics Consensus Forecast panelists, the expectations of inflation in the country will average to about 5.8% in 2021, which is down 0.1 percentage points from last month’s forecast. For 2022, the panel sees inflation averaging 5.4%. With the changing tastes in the economic performance Small and medium sized enterprises (SMEs) are sentimentally affected.

KNBS Report

The sudden changes in the economy with inclusion of the not much expected Budget, the Kenya National Bureau of Statistics (KNBS) oversaw a concern on the local economy.

In a consensus report released to the public on 30^th June 2021, showed that the overall Consumer Price Index (CPI) has been climbing a steady cliff since the last reading of FY 2020/21 budget, raising concern on the inflation rate and consumer prices which have been directly proportional in effect. The statistics showed that the month to month Food and Non-Alcoholic Drinks’ Index increased by 0.06 per cent between May 2021 and June 2021.

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“The increase in Food index was mainly attributed to increases in prices of some food items, which outweighed the decrease in prices of other foodstuffs,” read the report.

In relation to the local products, SMEs had to suffer a CPI increase of 0.12 per cent from 114.977 in May 2021 to 115.110 in June 2021. These in relation to the local commodities registered a sharp tone in variations.

“The Housing, Water, Electricity, Gas and Other Fuels’ Index, increased by 0.18 per cent between May 2021 and June 2021. This was mainly attributed to increase in prices of electricity, which went up by 5.61 per cent and 3.95 per cent for 50 Kilowatts and 200 Kilowatts, respectively. The Transport Index increased by 0.28 per cent, attributed to an increase in prices of petrol, which went up by 0.61 per cent between May 2021 and June 2021.”

Inflation

Meanwhile, inflation increased to 6.3% in June from May’s 5.9%, marking the highest inflation rate since February 2020. Consequently, the trend pointed up, with annual average inflation coming in at 5.3% in June (May: 5.2%).

According to the Central Bank of Kenya, the Inflation rate stood 6.32% in June this year which was a positive deviation from the 5.87% registered in May.

KNBS attributes the change in the inflation rates to the general increase in consumer product prices which go way down to the local vendor selling Potatoes and Kale-Sukuma wiki. In May Inflation increased from 5.76% in April to 5.87% in May 2021.

In the same month, a kilogram of cabbage recorded the highest increase in price, retailing at KSh 44.85, 7.3% higher than its April 2021 price. Sukuma wiki (kales), and onions also registered price increments at 6.5% and 5.03%, respectively, retailing at KSh 53.98 and KSh 112.65, respectively.

Food products, which carry the largest weight in the inflation basket at 32.19%, rose 0.32% from April. On the other hand, prices of cost of electricity, water and charcoal dropped. A kilogram of charcoal decreased by 2.9% to retail at KSh 58.07. Homes consuming 50 kilowatt-hours (kWh) paid KSh 837.18 last month, a 2.47% drop from April. Those that used 200 kilowatt-hours (kWh) paid KSh 4, 752.32, a 1.75% drop.

The transport cost increased by 0.69% from April due to a 2.87% increase in fuel prices to KSh 127.21 per liter.

Global Statistics

According to Statista, Global economy has suffered immensely since the global financial crisis in 2008 and that has caused global inflation to increase. The highest recorded global inflation of the past decade in comparison with the previous year took place in 2008, when it increased by more than 6.4 percent in comparison to the global inflation rate in 2007.

The global regions with the highest year-on-year inflation rate in 2014 are the Middle East and North Africa, as well as Africa Sub-Sahara. The nations in the world with the highest inflation rates in 2015 were Venezuela and Ukraine. Interestingly, in 2015, the inflation rate in Venezuela was approximately three times as high as the inflation rate in Ukraine.

As a result of a global economic downturn, the lack of a sufficient central bank, and the rise in interest rates, the cost of living in the Middle East has also become much higher than in industrialized countries. The inflation rate in industrialized countries in 2015 was just about 0.35 percent. Meanwhile, the inflation rate in the Middle East and North Africa amounted to more than 6.2 percent.

Due to economic progress following the global financial crisis, developed countries in the European Union and the euro area set forth economic strategies to strengthen their economy and maintain a stable economy. In addition, stagnant worker wages and a hesitation from banks to easily distribute loans to ordinary citizens have also caused the inflation rate in the euro zone to be relatively low. In 2015, Grenada and Switzerland reported the lowest inflation rates in 2015 in comparison to the previous year.

Government Plan.

According to KNBS and the National treasury plan on saving the battered economy, several way forwards were placed to cushion SMEs.

Regardless of that, Inflation in 2020 remained subdued at 5.6% mainly due to the crash in world oil prices, as well as consumer and business tax relief measures implemented by the government which saw the reduction of VAT, PAYE, turn-over and corporate tax.

Inflation is projected to remain within the Central Bank of Kenya’s target range of 2.5% to 7.5%. These low inflation rates are expected to be supported by lower food prices and muted demand pressures despite the recent increase in fuel prices, while fiscal and current account deficits are forecast to narrow as a result of improved revenue collection following the reversal of the emergency tax cut measures.

Mombasa, Kenya.

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