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Rising inflation takes its toll of region’s economies

Saturday April 18 2015
market

Fruits and vegetables for sale at a market in Kenya. The cost of food has gone up in the past two months. PHOTO | FILE

East African economies are experiencing rising inflation even as their currencies continue to weaken against the dollar.

The Bank of Uganda has raised its benchmark lending rate for the first time since June 2014, in a bid to slow the increase in inflation.

BoU Governor Emmanuel Tumusiime-Mutebile said that the depreciation of the shilling and faster real GDP growth will lead to an increase in inflation over the medium term.

Uganda has raised the base lending rate to 12 per cent from 11 per cent, as its core inflation rose to 3.7 per cent from 3.3 per cent between February and March: BoU’s outlook is 5 per cent by mid-2015.

Ben Mungyereza, the executive director of the Uganda Bureau of Statistics attributed the rise in inflation to the effect of the shilling’s depreciation on the prices of imported goods.

“The annual headline inflation also rose in March to 1.9 per cent from 1.6 per cent in February. The low rates of headline inflation are mainly attributable to the negative food crop inflation, which is a result of a good harvest in 2014/15 season,” Mr Mungyereza said.

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Kampala, Arua and Mbale registered the highest annual inflation rates, driven by high prices of food, clothing and footwear, and rent.

The monthly food inflation, which includes crops and processed foods, went up by 4.7 per cent in March. The drivers for this were an increase in the prices of staple foods, fresh vegetables, meat, fish and milk.

There was a decrease in the prices of cassava, oranges, pineapples, sweet bananas and carrots. In the non-food category, prices for kerosene, petrol, diesel and charcoal went down. Prices of firewood, clothing and cement rose in most centres during the month.

In Kenya, the overall inflation rate rose to 6.31 per cent in March from 5.61 per cent the previous month, a new high this year.

James Gatungu, the director of production statistics at the Kenya National Bureau of Statistics (KNBS), said the inflation rate for Nairobi’s lower income earners reached 6.32 per cent in March; this class of Nairobi residents was the hardest hit by Inflation.

“Between February and March, the prices of food increased by 3.18 per cent for lower income, 2.37 per cent for middle income and 1.37 per cent for the upper income group. The rise in prices was mainly as a result of the dry weather conditions experienced during the period,” said Mr Gatungu.

READ: EA economies hit by rising debt, falling export revenue

Between February and March, the food and non-alcoholic drinks index increased by 2.65 per cent. The rise was mainly attributed to increases in the cost of vegetables, milk and other food products. Currently, a 500ml packet of milk costs Ksh55 ($0.56) and the price of bread went up to Ksh50 ($0.53) from Ksh45 ($0.48) in January.

Interestingly, the data shows that the prices of sugar, maize flour and other food items dropped, yet the price of maize flour went up by Ksh20 ($0.21) in the past two weeks to retail at an average of Ksh105 ($1.11).

The Kenya Food Security Outlook report for March, compiled by the World Food Programme, Famine Early Warning System Network and the Ministry of Agriculture, shows that food security declined between January and March.

“Many households currently have no food stocks. As a result, households need to purchase all their food from markets at a time of seasonally low household incomes,” the report said.

Inflation rates of housing, water, electricity, gas and other fuel eased by 0.05 per cent. There were also a drop in the cost of electricity, cooking gas and transport due to a drop in public transport fares that outweighed the increase in the prices of diesel and petrol. A 13-kilogramme gas cylinder is selling for Ksh2,600 ($27.5), down from Ksh3,100 ($32.8) in December 2014.

Mathew Mutua, an analyst with RSL Financial Services, said that as much as the weakening of the shilling helps to rebalance the economy in the medium term, it has been discouraging investors.

“Investors feel that with the rising inflation, their investments will lose value. They therefore choose to move their investments to countries where the inflation rate will hold over the medium term,” Mr Mutua said.

An increase in staple food prices resulted in a slight increase in annual headline inflation in Tanzania in March, despite the country enjoying a bumper harvest in the 2014/15 season.  

Ephraim Kwesigabo, the director of Population Census and Social Statistics at the Tanzania National Bureau of Statistics, said the increased food prices pushed up the annual headline inflation rate to 4.3 per cent in March, from 4.2 per cent in February.

Prices of rice, fish, sugar, maize, vegetables, cassava and beans have gone up in the country.

“The annual inflation rate for food consumed both at home and out of the house has increased to 6.1 per cent,” Mr Kwesigabo said.

In Rwanda, the increasing cost of power, food and transport pushed up the inflation index by 0.8 per cent year on year in March, higher than 0.7 per cent recorded in February. Rwanda National Bank attributed the rise to the increase in year on year inflation on food, housing, water, electricity, gas and other fuels.

The inflation on local goods rose by 1.1 per cent on a monthly basis. That on imported products fell by a margin of 0.1 per cent on an annual basis, but remained stable on a monthly basis. The prices of fresh products rose by 4.5 per cent in March.

“The increase was driven by a 3.8 per cent rise in prices of housing, water, electricity, gas and other fuels, 0.8 per cent increase in food and non-alcoholic beverages, and a 3.9 per cent increase in transport costs,” BNR said in a statement.

Burundi, which releases its inflation figures the month after, said its February rates fell sharply by 1.2 per cent from 3.5 per cent due to lower costs for housing, water and electricity.

According to Burundi’s Institute of Economic Studies and Statistics, lower international fuel and food import prices saw the average inflation rate drop to 4.4 per cent in 2014, from 7.9 per cent in 2013.

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