News 2008


High Food Prices As Shortage Triggers Inflation

Business Daily (Nairobi)

4 February 2008

Michael Omondi

Low supply of foodstuffs has led to an increase in the prices of cabbage, carrots, onions,potatoes and tomatoes.

February 5, 2008: The rate of inflation went up sharply in January compared to December as analysts warned of higher prices for consumer goods in the coming months.

Food scarcity associated with the first three months of the year coupled with disruption of the production chain following the eruption of political violence more than a month ago is expected to drive inflation to record levels.

This will be made worse by the sky high prices of oil, which dealers predict will remain high for the better part of the year.

Figures from the Kenya National Bureau of Statistics showed that inflation increased to 18.2 per cent from 12 per cent in December as effects of high food prices continue to eat deep into consumers' pockets.

This is the highest level the month on month inflation rate has hit since September 2004 when it stood at 18.3 per cent.

"Food and non alcoholic drinks index increased by 12.4 per cent in January 2008 compared to December 2007 due to increases in the price of cabbage, kale, onions, carrots English potatoes and tomatoes," said the bureau in statement.

Since the political violence broke out over the controversial tallying of presidential vote, supply of food stuffs to the markets have been hampered and farms in Kenya's food basket, the Rift Valley, have been abandoned following the displacement of more than half a million people.

Food experts led by UN food agency FAO are talking of an acute food shortage in the coming months.

Policy analysts are sounding the alarm that the expected food shortages would spark a sharp rise in food prices, setting the stage for record inflation levels given that the food index accounts for more than half the overall inflation index.

The inflation rate is also anticipated to continue growing amid high fuel prices that have risen to Sh92 per litre .

"The expected high food prices will keep inflation on the upward trend," said Jacob Omolo, a researcher at the Institute of Policy Analysis and Research (IPAR)-a local think tank. He added that the high fuel expenses will continue to pile pressure on inflation.

Though the overall inflation stands at 18 per cent, residents of western Kenya have faced higher prices for commodities with reports indicating that inflation in Nyanza, Western and Rift Valley provinces stands at about 30 per cent.

The flow of commodities to this region has been reduced due to inaccessibility of the regions as youths have barricaded roads heading to the region.

The price of fuel in those regions, for instance, has increased to between Sh150 and Sh200 a litre , a sharp contrast to the retail price of Sh92 in Nairobi's Central Business District.

With the outlook of food prices looking dim, oil marketers are also showing a strong bias for expensive fuel with many saying that the sky-high fuel pieces are here to stay. A litre of unleaded fuel is retailing at an average price of Sh92 in Nairobi up from Sh84 in mid December.

But with indications that barrel prices are likely to remain high, players in the oil market say the prospects of pump prices coming within touching distance of Sh100 does not sound remote.

The price increase would affect manufacturers and transporters, among other businesses, which would be reflected in higher prices for commodities.

"When fuel prices go up, everything goes up, so I expect an increase in general commodities," said Mr Peter Wachira, senior investment manager at AIG Investments.

There are also fears that the overall 12-month inflation could remain high in coming months, in a move that is set to defy the government's target of single digit inflation, which has often been elusive since last May.

Underlying inflation, which excludes food prices, also increased from 5.9 per cent in November to 7.6 per cent in December, above the five per cent target.