Cost of living hits new low, growth remains sluggish

The cost of living measure dropped to an 18-month low in September due to lower prices of food but a slowdown in agriculture saw the economy grow slower in the three months to June.

This decline in agriculture also reflected the slowdown in private sector activity.

Inflation fell to 3.83 percent in September, from 5.0 percent a month earlier, according to the latest figures released by the Kenya National Bureau of Statistics (KNBS) Monday. The drop in the cost of living measure, the lowest since April last year, was linked to the fall in vegetable prices on improved weather in recent months.

Delayed rainfall in the second quarter to June affected the key farming sector, which accounts for close to a third of economic output, and this, in turn, slowed down economic growth. In recent months, the slow growth of the economy has seen companies freeze hiring and pay increases while some have had to shed jobs.

Kenya’s economy grew by 5.6 percent in the second quarter of this year, down from an expanding 6.4 percent in the same period a year earlier, the bureau said, adding that manufacturing and transport sectors decelerated.

“Agriculture’s performance as well as that of electricity and water supply were mostly hampered by a delay in the onset of the long rains,” the KNBS said. “Transportation industry was negatively impacted on by rise in prices of fuel.”

Farming, which includes forestry and fishing, grew by 4.1 percent during the period, down from 6.5 percent a year earlier.

Central Bank Governor Patrick Njoroge last week maintained a full-year growth forecast of six percent, citing robust bookings in the tourism sector. The bank will review its forecast after yesterday’s release of the second quarter data, he said.

Manufacturing, which accounts for about 10 percent of GDP, saw a growth to 4.2 per cent from 4.7 per cent last year. This is in line with Kenya’s private sector performance report from Stanbic Bank, which reported reduced activities with cashflow problems hurting performance.

The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) for manufacturing and services fell to 52.9 from 54.1 in July. Any reading above 50 indicates growth. In May, the index stood at 51.3.

The survey showed that activity was affected by cashflow problems, partly arising from a backlog of bills from government departments. Companies have responded by freezing expansion plans and halting hirings while some have cut jobs to protect profits.

But easing inflation could ease workers’ pain.

“Between August and September 2019, food and non-alcoholic drinks’ index decreased by 0.40 per cent due to decrease in prices of some foodstuffs outweighing increases recorded in others,” said KNBS.

In September, prices of commodities such as tomatoes, cabbages, carrots, onions, Irish potatoes and sugar all eased. This cut food inflation from 7.9 per cent in August to 7.13 per cent.

The inflation figure is within government’s target range of between 2.5 per cent and 7.5 per cent.

Policymakers held the benchmark lending rate at 9.0 percent last week, the seventh hold decision in a row, saying inflation expectations were well-anchored. CBK said recently it expects inflation to remain within this range mainly on expectations of lower food prices hinged on favourable weather conditions, and lower electricity prices on reduced usage of expensive power sources.