Inflation Shoots Past 7%  - Money Weekly 

Yesterday, President Kenyatta led Kenyans as they celebrated his last Madaraka Day in office. In today’s edition of Money Weekly, we look at President Uhuru Kenyatta’s achievements during his time at the helm, as well as other crucial news stories that affect your pocket.

Uhuru Highlights Achievement in Final Public Ceremony

President Kenyatta cited the numerous achievements his administration has made since he took the reins in 2013, including infrastructure growth and improvements in the education and health sectors. 

The President highlighted the achievements during the Madaraka Day celebrations on Wednesday, his last public ceremony before he steps out of the presidency in August.

Some of the key achievements that President Uhuru highlighted include:

• Construction of over 12,000km of road, bringing Kenya’s tarmacked road network to 21,826km, up from the 9,700km before he took office.
• Enhancing gender inclusivity by promoting and fast-tracking the appointments of women into leadership positions.
• Introducing the competency-based curriculum (CBC) and achieving 100% transition from primary to secondary education.
• Promoting the growth of tertiary education institutions, which grew from 52 in 2013 to 238 today.
• Growing Kenya’s stature internationally and creating opportunities for Kenyans abroad, a move the President said has increased diaspora remittances tenfold in the last ten years.
• Introduction of Huduma Centers and the eCitizen platform, which have enhanced Kenyan citizens’ access to government services.
• Transitioning the country from analog to digital television, a move that helped increase the number of TV and radio stations to 130 and 204 today, up from 14 and 130 in 2013.

Kenya’s Inflation Hits 2-Year High

Kenya’s inflation rate rose from 6.5% in April to 7.1% in May, the highest since February 2020, when it stood at 7.2%.

The rise in inflation follows a significant increase in the cost of essential products like food, cooking oil, fuel, household equipment, electricity, cooking gas, water, and transport. 

The Central Bank of Kenya has already warned that the current inflation levels risks surpassing the government’s 2.5% - 7.5% inflation target. The last time inflation breached the government’s upper limit was in August 2017, when it rose to 8.04%

The rise in inflation, coupled with stagnated salaries, has forced Kenyan households to reduce their spending on non-essential products like airtime and alcohol, putting a strain on companies in the telecommunications and liquor businesses. The decreased demand for goods has also affected private-sector demand.

The increasing cost of most items has been largely attributed to supply chain disruptions caused by global factors, including Covid-19, the Russia-Ukraine war, and drought in countries that supply commodities like wheat, palm oil, and sunflower oil.

Read Also: Rising Inflation: Where Should You Keep, Invest Your Money? 

KPLC to Cut Power Bills by a Further 15%

The government has issued a Ksh7.05 billion subsidy to the Kenya Power and Lighting Company (KPLC) to enable it to reduce the cost of electricity by a further 15% without a negative impact on its cash flows. This comes following resistance by independent power producers (IPPs) to lower their tariffs.

In October last year, President Kenyatta promised a 30% reduction in the cost of electricity, which was to be implemented in two tranches – 15% in January, and a further 15% in March.

In January, KPLC implemented the first 15% reduction by lowering system losses, which refers to the electricity bought by the power provider that doesn’t reach consumers due to leakages and theft.

KPLC planned to implement the second 15% reduction by reviewing its power purchase agreements (PPAs) with suppliers. However, the IPPs, some of which belong to institutions like the World Bank, pushed back against KPLC’s plan to have them reduce their rates.

Left with no other option, the government has now decided to offer a subsidy to KPLC. This will allow the power provider to lower the cost of electricity and ease the cost of living for Kenyans, who are already reeling under the weight of a huge increase in the cost of essential items.

Parallel Exchange Rates Emerge as Dollar Shortage Bites

Dollars have become scarce in the country, pushing lenders to come up with their own exchange rates that are way above CBK’s printed official rate.

Speaking to the press on Monday, the Kenya Association of Manufacturers (KAM) noted that its members were forced to purchase the greenback at Ksh120 instead of the Ksh116.81 selling rate recommended by CBK as of today. 

According to KAM, this is affecting its members’ ability to meet their overseas obligations and straining relationships with suppliers while at the same time increasing the cost of doing business.

However, CBK Governor Patrick Njoroge has rubbished KAM’s claims of a parallel exchange rate, arguing that there is no shortage of dollars in the country.

CBK Raises Interest Rate to 7.5%

CBK’s Monetary Policy Committee (MPC) announced a new benchmark interest rate of 7.5% on Monday, May 30. This is the first time CBK has revised the key interest rate in close to seven years. 

The MPC decided to increase the rates due to the elevated inflation outlook, with CBK hoping that the revision of the rate from 7.0% to 7.5% will help reduce inflationary pressure.

Even with the hike, the MPC is still closely monitoring the situation and has expressed its readiness to make further adjustments if necessary.

Other Money News

• Through a Gazette notice, the Treasury has asked Parliament to revise the debt ceiling from the current Ksh9 trillion to Ksh10 trillion. This will allow the country to borrow an extra Ksh846 billion to cover the budget deficit in the coming financial year. The Treasury CS had also pushed for a switch from the current hard cap to a cap based on a percentage of GDP.
• Insurers heavily invested in the stock markets suffered huge paper losses as NSE stocks continued losing their value this week. The Nairobi Securities Exchange (NSE) has been steeply declining this year, having lost Ksh586 billion in value since January. This decline has resulted in some insurers shedding their investments in stocks in favour of other asset classes like real estate and government bonds.
• Developers are up in arms against the reinstatement of National Environmental Management Authority (NEMA) levies, which take effect this month. The Kenya Property Developers Association (KPDA) argued that the reintroduction of the levy would make construction even more costly at a time when the prices of most construction materials have gone up. The levy ranges from Ksh10,000 to Ksh40 million, depending on a project’s risk level.
• The CBK’s 2021 Bank Supervision Annual Report shows that Kenyans closed 3.6 million bank accounts last year, decreasing the number of bank accounts from 69.9 million to 66.3 million. This has been attributed to the closure of dormant accounts and the effect of the Covid-19 downturn on customers’ cash flows.