Inflation to remain high, experts predict

August 28, 2008
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, NAIROBI, August 28 – Experts are painting a gloomy picture of the already declining consumer purchasing power in the country as a result of inflationary pressures.

Stanbic Investments (EA), Investment Manager, Kenneth Kaniu said Thursday that it was unlikely that the current high inflation rates would decline much further this year.

“The figures will basically range between the 20s and 18s (percentage points) at the end of the year, and therefore may not really ease the suffering of the country’s masses,” Kaniu said.

In July, the Central Bureau of Statistics had placed the inflation rate at 26.5 percent compared to Angola, which recorded the least inflation rate in Africa at 12.43 percent.

Another of the firm’s Investment Managers Humphrey Gichuha said that though inflation would come down in the future, a lot still needed to be done to improve the country’s business operating environment.

“You find that key infrastructure like the pipeline and the airport are operating at almost full capacity and all these things tend to reduce the competitiveness of Kenya. Though inflation will come down in the future, a lot still needs to be done on other fronts to raise the competitiveness of the country,” Gichuha emphasised.

He said agriculture may be good in combating inflation.

“You see the sector contributes 25 percent of the GDP which means nearly 60 to 70 percent of the population in this country works in an agro-based company,” he observed.

“What that implies is that if you put money in farmers – in the people within the value chain – then you have a huge chance of increasing the purchasing power of the masses thus combating inflation through stimulating growth.”

While acknowledging that the government was putting a lot of effort on improving the agricultural sector, he maintained there was room for improvement.

“When you look at the international prices of coffee and tea, you will notice that very little of this actually comes back to the Kenyan farmer; because of the inefficient value chain, prices are low, the money comes late and there is not much in terms of value addition,” said Gichuha.

He insisted that the government needed to work on both the yields and a more efficient value chain process in the agricultural sector by having less middlemen, value addition and improved marketing efforts.

“Initiatives like Brand Kenya tea and coffee that the ministry of agriculture is trying to undertake are quite commendable,” he observed. 

He said this would ensure the country achieved a more sustained effort of containing inflation, which would underpin economic growth thus making it better for all.

On the other hand Stanbic Executive Director David Kinyua noted that inflation had now ceased being an economic issue, but a social one especially in the African region.

“One of the biggest worries is that inflation is affecting more the poor compared to the richer groups in the region,” he stated.

“This explains why in some countries the masses have taken to the streets to protest high commodity prices and especially when they feel their governments may not be doing anything about it. Whatever little gains come through in terms of economic growth tend to impact more on the rich than the poor."

"For instance the purchasing power of an ordinary Kenyan last month was eroded by between 26 and 30 percent where you find that for a richer individual what he could have purchased using Sh1000 is only reduced to Sh990 while for the poor man it becomes Sh700,” Kinyua suggested.

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