The Standard Group Plc is a multi-media organization with investments in media platforms spanning newspaper print operations, television, radio broadcasting, digital and online services. The Standard Group is recognized as a leading multi-media house in Kenya with a key influence in matters of national and international interest.

Standard Group Plc HQ Office,
The Standard Group Center,Mombasa Road.
P.O Box 30080-00100,Nairobi, Kenya.
Telephone number: 0203222111, 0719012111
Email: [email protected]

NEWS & CURRENT AFFAIRS

The Nairobian

Premium

Yes, prices are falling but it might be too early to celebrate

Financial Standard

By XN Iraki | Apr 23, 2024

**Agriculture Cabinet Secretary Mithika Linturi shops for maize flour at a supermarket in Kawngware, Nairobi on November 24, 2023.** [Boniface Okendo, Standard]

The shilling value is up, and the rains are finally here.

Fuel pump prices are also coming down. The government has been quick to point out that the storm is over, and its policies like hiking interest rates have worked.

The inflation rate is down partly because of the strong shilling and the rains. A strong shilling makes oil cheaper, while rain brings down the price of food. Oil and food are the key inflation drivers. Add muted competition in most sectors.

If we look at the numbers from a macro level, things are looking up. The shock therapy has worked.

Keep Reading business

Economists in the Kenyan Kwanza government must be celebrating. The economic models and theories have finally been tested and found to work.

The heavy use of monetary policy might indicate that our economy is more advanced and efficient than pessimists want us to believe.

It is another indicator in addition to our shortening attention span that Kenya is slowly and inexorably joining the league of progressive nations.

We would be farther on the growth trajectory if we tamed graft, our economic soft underbelly.

Let’s add that fiscal policy is also in use but painful, more so when exemplified by taxes. Could I be right to suggest academics have had lots of sway in the Kenya Kwanza government?

Is it a trickledown down from its head? Could it be that their thinking closely mirrors that of the International Monetary Fund (IMF)?

Before uncorking our champagne bottles, let’s get to the streets and ask if Wanjiku, Wandoe, Naipanoi, Nduku (not wa Kimani) and others are enjoying the improvement in the economy.

Are they celebrating? Most Kenyans have never taken champagne. What would be a better metaphor?

The prices have stabilised but not stopped going up. An inflation rate of 5.7 compared with 6.3 per cent is not that significant.

But it’s good news. The price of unga (maize flour) is down and so is that of sugar and other foodstuffs. Rain is good and is often more effective than some policies in improving our economic welfare.

What about rent, school fees, bus fare, construction materials and water? Some could add - in whispers - beer, cable TV, internet subscription and airtime.

Prices and taxes are quick to go up; they are instantaneous, but they are sticky to come down. Wages and salaries are also sticky, they go up slowly, sometimes after tough collective bargaining agreements (CBAs) or industrial action.

Can we index our salaries and wages to inflation to ensure our purchasing power is maintained and there is more social harmony and higher productivity?

The government in its wisdom avoided salary raises that would have raised inflation further. Will salaries and wages go up after the economic storm or wait closer to 2027 to have maximum political effect?

The basic truth is that prices will just stabilise and not come down significantly as fast as they rise. Why?

We shall not get new factories, telcos, matatus or other services to stir the market with competition overnight. Without more competition, entrepreneurs, have no incentive to lower prices.

This time they have a good excuse - taxes. They can argue that any extra money they could have made from price hikes has been swallowed by taxes, and taxes are not coming down. Few ever check if tax rates rhyme with price rises. Which is higher?

For citizens worn out by high taxes and prices, any good news is good news. The political leaders will amplify. The academics can join and say the laws of economics work. They have had free but painful experiments.

A keen observer could see through celebration noise and ask if political leaders can use the laws of economics for political gain. Just listen to political messaging vs economics as we approach 2027. Will some of the taxes be waived or dropped?

To the citizens on the streets, taxes and interest rates are economic mysteries that burn holes in our pockets. But to political leaders, these are tools that can change our behaviour and voting patterns.

It’s more poignant when we give the government a mandate to act if the market fails. The nexus between economics and politics has not been explored particularly from the non-elitist point of view.

Can the market be made to fail? What if the government is part of the market? Clearly, since the onset of the Kenya Kwanza government, the visible hand of the government seems to be overshadowing the invisible hand of the market.

Yet they should be working like a pair of scissors. It would be interesting to watch how the government and the market will continue to dance, more so with the IMF watching.

My humble advice is to celebrate the fall in prices cautiously. And keep praying for the rains devoid of floods to continue. Don’t earthquakes have aftershocks? Don’t storms come with floods fallen trees and debris?