Monday, December 01, 2008

Urban Inflation Index: December 2008

Four months ago last review (should be a quarterly exercise going forward) . 2008 has been a year with high prices and cost of living factors in the news. From the post-election violence in January to the (then) world oil prices, the pinch has been felt in Kenya.

The Government has come under pressure, but without addressing of its own excesses (procurement, new offices & limousines, parliemantarians, councilors and judges who refuse to pay income tax), has likewise tried to run the screw on the corporate sector - resulting in efforts to reduce the price of petrol and now maize flour (staple food)

Gotten more expensive

Staple food: Maize flour which is used to make Ugali, that is eaten by a majority of Kenyans daily. A 2 kg. Unga pack at Uchumi today costs Kshs. 97 which is 1/3 more than the Kshs. 73 four months ago. Farming woes continue, the crop this year is bad and Unga who said that they ran out of flour, among other revelations at their AGM, also stated that the maize harvest in 2009 will be worse and high prices will continue. There have been allegations of dodgy imports and the Government is today trying to arm-twist the price of Unga down to Kshs. 55 (EDIT – the Government announced today that maize will cost Kshs. 72 in urban areas and Kshs. 52 in rural areas)
Other food item: Sugar (2 kg. Mumias pack) is at Kshs. 160, up from Kshs. 145 three months ago. For Mumias customers and shareholders, the price is even lower for other unbranded sugar(s) on shelves.

Foreign Exchange: 1 US$ equals Kshs. 79.08, (18% weaker) than the Kshs. 67.4 four months go. This is partly the strengthening of the dollar, partly outflows from Kenya (at the NSE) - and comes after the shilling (while strong) had cushioned some impact of high oil prices.

Gotten cheaper

Fuel: Litre of petrol fuel (at local petrol station) is now Kshs. 92.7 (~$5.40 gallon) which is about 10% cheaper than the Kshs. 101.50 seen last time. While that is still higher than it was at the beginning of the year, and oil prices are down over 60% from the record highs of mid-2008, it is remarkable that for once fuel prices have reduced. In the past they have merely stagnated and oil companies, not passed on savings to consumers, but the threat of the government to regulate the prices, and a sustained media campaign (web/radio) has resulted in a slight reduction in petrol prices. (EDIT – A leading oil marketer - Shell announced today that prices will drop by Kshs. 15)

Entertainment: Bottle of Tusker beer (at local pub) is Kshs. 120 down from Kshs. 130 (cheaper by 8% from four months ago). Don’t know if this is one pub decision or the competition from new Summit beet launched by Keroche in October 2008 - the first true local competitor since (South African) Castle folded shop about six years ago. How will EABL fight back, and do they have to? Keroche got off to a good start but there has been little post launch marketing.

Communications: Continues to get cheaper as two mobile phone companies have become operational in the last quarter of the year – Orange (France Telkom) and Yu (Essar/Econet). The tone was set by Zain’s successful Vuka tariff, priced at Kshs. 8 per minute to call any network. Market leader Safaricom responded with Jibambie (up to a 63% discount) which enabled their subscribers to make calls at prices ranging from Kshs. 8 down to Kshs. 3 per minute if they bought a bigger denomination airtime voucher. The battle for subscribers is shifting now from voice calls which have reached unprecedented lows to data and money transfer where Safaricom is effectively Kenya’s largest ISP and money wallet.

No change: Electricity: My November KPLC bill is still Kshs. 1,900, same as it was in August, with a fuel surcharge reduction yet to be effected. High electricity prices have been a major cause for concern among Kenyan companies leading to President Kibaki to call for a reduction in the taxes levied on petrol prices and electricity.

But: Related: Is the quality of official statistics inflation data in question?
EDIT - Challenged by inflation, but with a view to improving liquidity, the Central Bank of Kenya today lowered the CBR rate (implied base rate) from 9 to 8.5% and also lowered the bank minimum cash ratio from 6 % to 5%

11 comments:

Rafiki said...

Banks: Thanks for consistently posting on your own urban inflation index.
Shouldn't we just open up these agricultural markets? Look at how the prices of wheat, maize, sugar, vegetable oil, etc have plummeted in international markets in recent months, yet in Kenya food prices keep on going up and inflation remains too high (and other countries are heading towards deflation...). Some good news: Ruto and Raila announced today that I will be paying 52 or 72 bob only for 2kg of unga flour very soon (depending on which class they want to put me in, lower income class will pay 52 bob, middle income class will pay 72 bob - please bring your payslip to the shop so that we can verify your income class). While this may be good news, it is price control, and completely opening up the markets would be a better solution for most of us in the long term.

Thanks also for the link to my fuel price research, recently I have found it a challenge to keep the list updated. But Shell apparently announced today that they are going to reduce their pump prices by 15 bob. Others may follow the same example.

coldtusker said...

How will they monitor the 'income groups'?

And our MPs will buy at 52/- and sell at 72/-... this scheme is dead in the water and will be abused ad infinitum!

coldtusker said...

Fuel Prices: The idiots at the GOK refuse to refund the pre-paid taxes to the oil companies... and this is passed onto consumers as "interest costs"...

Fuel Prices: The KES has dropped 30% vs US$ in the past few months (62 to 80) thus negating the bulk of 'savings' from the drop in oil prices.

PKW said...

Bankelele;on staple foods-what dodgy imports? I've been thinking someone could make loads of money importing maize from UG, where it is not THE staple food (matooke and katoogo-bananas in various forms-are).UG is the only net exporter of maize in the region.


Rafiki; Ruto and Raila said what?? I have never known a time or a place when markets discriminated against any one, rich or poor. That's the job of lifestyle/high-end stores. An attempt by R&R to join other working Kenyans in paying taxes would send a greater message about how they care than all of the combined noise they can make about Unga prices.

bankelele said...

Rafiki: Thanks, it’s also my record to know how prices change over time. I wonder how they will differentiate high income vs. low income – or will low income maize be yellow maize now on ship?

Coldtusker: good point – perhaps yellow maize will cost 52 - like transit fuel has a different colour? The arbitrage opportunity has always been there to buy (cheap) foodstuffs in rural areas and sell (expensive) in urban areas. The problem now is people in Kibera want to pay 52 – but aren’t they ‘urban’?

PKW: disasters are money-makers for those in power as procurement rules are set aside in the interest of humanitarian speed. All last week, MPs’ and ministers have been denying that they were middle-men in maize imports

ezasharula said...

setting price control, will encourage hoarding of the commodity thus creating artificial shortage. This will push the price to its current price of 98/= or higher. We all remember (if you were living then) the KANU days when prices were control and you would be forced to buy only a kilo of sugar with ROB or DOOM! I say let the market determine the buying and selling price. I would love to see MP's pay taxes more than having the price of Unga go down. I stopped making ugali my staple food, i think it is time Kenyans start using other food stuff.

mashatall said...

Only way to level the playing field in commodities market is to establish a commodities exchange like chicago board of trade (CBOT), where the millers will be able to trade futures and hedge against price increases mainly manipulated by middlemen. i Believe the east african grain council might be looking to establish one, and have partnered up with Equity bank and have rolled out a warehouse receipt system. This will safeguard millers and other organisations wishing to procure grain such as food aid
agencies, who can buy the warehouse receipts which guarantee the quality, quantity and
location of the commodity. The farmer is equally protected since he can secure funds from Equity bank against his receipt, and his produce will be sold at a much better price thus fetching him good income and thereby locking out the middleman. Only thing left is to actually have the exchange regsitered and have this receipts trading same as NSE.

PKW said...

How is the price discrimination going to be effected. As in how are wholesales gonna know which retailer is urban and which one is a shag mundu? Kwanza it costs more to transport to the rural areas with the pot-hole filled roads, if existent, than to the urban areas. And as far as I know, our village duka-owners buy their supplies from the urban areas. Wacha we see.

Anonymous said...

reading financial news on kenya is quite puzzling - its seems the editors have no sense of where the economy is hence cant give any good overview. One article goes to lengths explaining how kenya has been shielded from the global financial crisis while the very next explains how the same crisis is affecting businesses and the economy which is it ? Bdafrica = schizophrenic journalism

Anonymous said...

Would it even be worth it to have a commodities exchange in a country like Kenya where productivity levels are so low?

Maishinski said...

Anon... Busines Daily needs a dose of professionalism. Too much hype.

Someone in Stockskenya.com recently said currently, "Cash is King"... hmmm, Bankelele's report shows that such statements demonstrate of dubious copy/paste wisdom.

Cash may be King (temporarily) in the West and western influenced BRIC economies due to a general fall in Prices (Deflation).

However, we don't have Deflation in Kenya. The general population is complaining about high prices - but there is no corresponding drop in demand. No one is "keeping off the shelves"!

This is the clearest indicator of the low correlation of Kenya's Economy with the rest of the world.

Now, let me confuse everyone with a little dose of paradoxical reasoning. Actually inflation at this point in time is a GOOD THING for Kenya!

Deflation will raise the cost of doing business abroad (e.g. increasing value of money + reduced demand = higher labor costs + higher *real* interest rates + low profits = road to bankruptcy).

No wonder the increased interest in Africa as an attractive alternative investment market for foreign businesses! I foresee more foreign businesses in Kenya and Africa 2009 onwards.

Stocks wise: Foreign Investors stand a better chance of generating high returns in low-correlation markets where inflationary forces still exists. Deflation is bad for the banking industry. Investors will seek other forms of currency e.g. Gold, or other places to store their cash. Kenya is quite attractive in this respect. This suggests the possibility of a massive bull run at NSE within the next 2 years.

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