The cost of living among East African households is projected to rise over the coming months as weaker-than-expected food supply and depreciating currencies push up prices of basic commodities.
Latest data shows that East African countries, save for Rwanda, recorded increases in the prices of goods and services during the six months to June, largely fuelled by increased food and fuel costs.
East Africa’s annual average inflation is forecast to rise to 3.9 per cent this year and 4.8 per cent in 2020, from 3.6 per cent in 2018, blamed on unfavourable weather conditions that led to late planting in some countries.
According to the National Bank of Rwanda, food prices started rising in April as a result of the prolonged drought, which impacted the planting seasons of several East African states.
During the period, a survey carried out by the NBR shows that over 70 per cent of the firms sampled in Rwanda increased prices for their goods.
Governor John Rwangombwa said inflation in Rwanda is expected to rise to three per cent this year due weaker local currency, uncertainties around Brexit and global trade tensions.
According to Mr Rwangombwa, the Rwandan franc is expected to depreciate slightly this year due to a widening trade deficit occasioned by a high import bill attributed to ongoing infrastructure projects and a slowdown of the global economy.
The region’s weakening currencies pose a risk to the inflation outlook because they make imports more expensive and these costs are usually passed on to consumers.
For instance, for the past two weeks, the Kenyan shilling has come under intense pressure, with forex dealers blaming it on increased demand by importers and excess liquidity in the market following the government’s plan to phase out the Ksh1,000 currency note from October 1.
This week, the Kenyan shilling weakened against the dollar to a five-year low, trading at an around Ksh104.
Forex reserves dropped by Ksh18.6 billion, with analysts at Sanlam Investments Ltd warning of the risk of further erosion through increased food imports.
A weaker shilling would impact the prices of fuel and imported foodstuffs.
Kenya’s import bill of petroleum products increased to Ksh327.8 billion ($3.1 billion) in 2018 from Ksh265.2 billion ($2.5 billion) in 2017 from higher international oil prices.
Kenya estimates that 1.6 million people in the country are currently food insecure, up from 1.1 million in February. This number is expected to increase to over two million by September, according to Kenya Food Security Steering Group.
Currently the World Food Programme is providing food and cash transfers to 390,000 people affected by the drought who also participate in the resilient livelihoods programme.
The poor performance of the October to December 2018 short rains season and the subsequent below-normal and poorly distributed March to May 2019 long rains brought drought to Kenya, especially in arid and semi-arid counties.
In Tanzania, food stocks have been gradually falling since January 2019, exerting pressure on food prices, according to the Bank of Tanzania. As a result, food stocks held by Tanzania’s National Food Reserve Agency fell from 93,037 tonnes in January 2019 to 68,058 tonnes in May.
The Bank of Uganda said the risks to the country’s inflation outlook include the future direction of food crop prices in the wake of uncertain weather conditions, the rise in domestic demand and the exchange rate, which is dependent on both domestic and external economic factors.
The four countries’ average inflation during the first quarter (January-March) of this year stood at 2.89 per cent and rose to 3.44 per cent in the second quarter (April-June).