Shilling hits new record low against dollar, stoking inflation fears

CBK) data shows the shilling exchanged at an average of 121.0706 against the dollar. [iStockphoto]

The shilling hit an all-time low against the dollar yesterday, signalling a rise in inflation and a higher cost of imported goods.

Central Bank of Kenya (CBK) data shows the local currency exchanged at an average of 121.0706 yesterday, setting up the country for more expensive imports, electricity and debt servicing distress.

The continued weakening of the local unit is expected to push up the cost of living, hurting households already reeling from high fuel and food prices. "The costs of every imported input will rise," said Deepak Dave of Nairobi-based Riverside Advisory on the expected impact of the economic fallout from a weaker shilling in an earlier interview.

A weak shilling puts an extra strain on the economy given Kenya is an import-driven economy. Kenya imports various goods, including cars, petroleum products, machinery, medicine and pharmaceuticals products, vegetable oil, wheat, clothing and shoes. The cost of servicing Kenya's public debt, which stood at Sh8.579 trillion at the end of June, is also set to rise with a weakened shilling piling pressure on the public purse.

The country's inflation - a measure of annual changes in the cost of living - hit 9.2 per cent in September from 8.5 per cent in August, the Kenya National Bureau of Statistics (KNBS) reported. This is above the 7.5 per cent target by CBK.

Key concern

The International Monetary Fund (IMF) last week flagged the surge in inflation as a key concern.

It warned that the rise in food and energy prices will spill over to other goods and services -known as second-round effects-particularly fuel prices that have a big pass-through or multiplier effect on transport costs.

"Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades," said IMF in its outlook.

"The cost-of-living crisis, tightening financial conditions in most regions, Russia's invasion of Ukraine, and the lingering Covid-19 pandemic all weigh heavily on the outlook."