Why The Prices of Essential Commodities are not declining  Soon.


Why The Prices of Essential Commodities are not declining  Soon.

In the last few months, Kenyans have experienced a spike in the prices of important food commodities. According to the Kenya national bureau of statistics recent data the inflation level which is defined as the persistent increase in the prices of essential commodities leading to the decline in the value of the shilling declined steadily to about 5.3% but the paradox  is that the prices of the essential commodities remains high. Some of the factors leading to the price hike includes;

First, a spike in the food prices may be influenced by drought related inflation experienced in Kenya every time the country receives less rainfall to sustain a good food crops harvest. It should be noted that the level of the short rains last year was not enough leading to a decrease in food supply while demand remained high leading  to a spike in food prices. With the long rain season here we expect that drought driven inflation will decrease due to availability of more food crops.

Second, imported inflation is also a major cause of the increase in price of essential commodities. Imported inflation occurs when the prices of imported commodities such as petroleum products leads to overall increase in the price of general commodities in the country. In an import driven economy like Kenya this is a big challenge when it comes to stabilization of the essential commodities prices. For instance the spike of some essential commodities prices such as cooking oil, steel bars, wheat can be attributed to high cost of the products or raw materials in the foreign markets and the deteriorating  value of Kenya shilling (trading at 116 to the dollar) leading to an increase in the over all prices of imported products.

Third, Covid 19 recovery has also had an impact on increase in  prices as it has lead   to an increase in demand of most essential commodities globally rising the global inflation rate to about 6%. Covid 19 disrupted the value creation and delivery systems hence disrupting the global supply of most commodities. With the recovery set to continue, the demand of many commodities will remain higher compared to low supply as firms moves to full optimisation of the production systems leading to higher prices.

Lastly,high taxes, especially here in Kenya, is a contributing factor to high prices of essential commodities such as petroleum and gas products as the government increases its revenue collection amidst low output occasioned by Covid 19 disruption. It is also worthy noting that the price increase in imported commodities here in Kenya seems to be higher than the overall global increase. For instance while the price of steel increased by 25% globally the consumer price here in Kenya has increased by 70% which can be attributed to cartel like tendencies of taking advantage of the situation.

In conclusion, it means that the high prices of essential goods will remain high until there is full recovery and stabilized supply  of goods in global market, we have favorable long rain season  this year, abnormal hike in prices is controlled , the shilling becomes stable against the hard currencies   and some taxes are lowered especially for very essential goods like petroleum products.

Dr Kabata is an Economist and Innovation Lecturer

 


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