|The Kenya Shilling weakens, sparking fears of higher commodity prices|
Author: Bedah Mengo
Date: 4 Jun 12
Posted on Monday 4, June 2012.
After months of staying stable and holding tight against world major currencies, the Kenya shilling has weakened sparking fears that prices of basic commodities will escalate to unaffordable level.
The shilling on Thursday, according to Central Bank of Kenya (CBK), exchanged at 87.90 against the U.S dollar, 134 against Sterling Pound and 107 against the Euro.
The shilling later closed the day at 86.70 shillings against the dollar after CBK’s intervention, up from 83 shillings in the past week.
However, it is feared that the currency may jump to 90 shillings in the coming weeks.
The past three months has seen the local currency remain stable against the dollar, exchanging at between 82 shillings and 83 shillings.
This was a great gain against major world currencies after strengthening from 107 against the dollar in November last year.
Then, prices of food and other basic commodities and services increased significantly pushing many consumers to the edge.
The fall of the shilling then was blamed on rise in imports and increased demand for dollars.
The current volatility of the local unit is therefore expected to push up further prices of basic commodities and services, which notably are already high despite drop in inflation to 12.22 percent, according to Kenya National Bureau of Statistics (KNBS).
Among prices of things expected to rise further are fuel and food.
This is because Kenya imports oil and some of its products and food that includes maize and beans.
Higher oil prices will also push up the cost of most basic commodities since fuel is a key ingredient in production of goods for most manufacturers.
Major oil marketers in Kenya have said they are watching the shilling keenly and they will adjust their prices accordingly in the coming weeks.
Last month, the Energy Regulatory Commission (ERC) increased prices of fuel products by up to 0.08 dollars.
It was the same situation in April. ERC Director General Kaburu Mwirichia attributed the increase to high prices of crude oil and refined petroleum products internationally.
"There has been a steep upward trend in the price of crude oil in the international market.
"This has a negative impact in current and subsequent price reviews," Mwirichia said.
The increases have had an impact on prices of most products and services because of the ripple effect. Key among them is the cost of transport, where in Nairobi commuter fares have gone up by up to 0.6 dollars.
"Most of the times I spend almost double the amount of money I used to spend few weeks ago on fare before fuel prices started to rise.
"In March I used to spend at most two dollars on fare.
"But since April, the amount increased.
"Now I spend up to 2.8 dollars each day," Bernice Awour, who lives in Rongai, a suburb on the outskirts of Nairobi, said on Friday.
Awour noted that public transport vehicles operators have blamed the high fares to increased fuel prices.
"When commuters complain that the fares are too high, operators say fuel prices have gone up, thus, they have to increase their charges so that they can make profits," she said.
KNBS in its latest inflation report noted that the transport index rose by 0.79 percent between April and May due to higher costs of taxi charges, public transport fares and petrol.
The cost of housing, water, electricity, gas and other fuels also increased during the period under review.
As the shilling drops against world major currencies, Awour predicted life is going to become unbearable in the coming months for most Kenyans.
"We may go back to where we were in November last year when inflation hit 20 per cent.
"Little has changed since then but prices of most goods had gone down," she said.
Sharp rise in prices have also been experienced with food and basic commodities like sugar, milk and bread.
A 2kg packet of sugar goes for an average of 3 dollars, up from 2.5 dollars in March. A packet of 500ml of milk and a 400g of bread retail at an average of 0.54 dollars, up from 0.4 dollars early this year.
Other factors, for instance low stocks and drought, besides rise in cost of production, have been blamed for the rise.
The highest increase in prices, however, has been recorded in maize, beans and other cereals.
A 90kg bag of rice is currently being sold at an average of 138 dollars, up from 116 dollars in February.
Similarly, a 90kg bag of beans is being sold at an average of 80.
On the other hand, a 90kg bag of maize retails at an average of 45 dollars, up from less than 30 dollars in February.
Kenya, according to the Ministry of Agriculture, expects to import approximately 700,000 90kg bags of maize by end of September to cushion a deficit.
Therefore, if the shilling continues to slide, maize prices will rise further.