A sharp rise in producer inflation, which measures the price movement of manufactured goods before they are shipped to retailers, has reached a three-year high as players deal with supply disruptions and the effects of a global economic slowdown.
According to data from the Kenya National Bureau of Statistics (KNBS), the cost of manufacturing as measured by the Producer Price Index (PPI) reached 16.53 percent in June before falling to 15.78 percent in September, but it remained the highest since September of this year, when the inflation rate was 1.40 percent.
Manufacturers passed on the high cost of PPI to consumers in order to recoup the additional cost incurred in production. As a result, consumer goods such as edible cooking oil, wheat, and maize flour reached historic highs.
“The third quarter year-on-year producer inflation was 15.78 per cent in September 2022 compared to 7.72 per cent in September 2021,” said KNBS in a report.
PPI, a key economic figure in developed economies, captures price movement before retail and serves as an early indicator of inflation.
Mining and quarrying had the highest inflation increase in September, at 4%, followed by manufacturing and water supply, at 17.7% and 2.1 percent, respectively. Electricity, on the other hand, saw a 6.9 percent decrease in cost, according to KNBS.
The Russian-Ukraine war, which impacted raw material prices and caused a sharp increase in freight charges, was blamed for the sharp increase in production costs in the second quarter of 2022.
After the United Nations and Russia reached an agreement, seaports along the Black Sea, a major trade corridor, were opened in August, resulting in a reduction in freight charges and the cost of raw materials, particularly grains such as wheat. Wheat prices fell to a low of $365 per tonne after the corridor opened, from a high of $540 in April, when the war was at its peak.
Russia invaded Ukraine at the end of February, and the war’s consequences were felt in the second quarter.
According to the Kenya Association of Manufacturers (KAM), the May minimum wage and high logistics costs have also impacted the cost of local production.
“The freight charges at both international and local markets have remained high and the effects of the minimum wages are now being felt in the second half of the year. These, among other factors, have had an impact on the rising cost of production,” said Rajan Shah, chairman of KAM.
The government increased the minimum wage for this year from KES 7,240.96 to KES 30,627.45 per month to between KES 8,109.90 and KES 34,302.75 per month.
Mr Shah stated that the increase in freight charges has been caused by the high cost of fuel, particularly diesel, which is widely used in the transportation sector and has remained high for the better part of the year.
Though fuel prices have fallen slightly in the last two months, they remain high at KES 136 per litre (diesel) on average, compared to KES 107 a year ago.
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