Nairobi: The effect of a weak shilling on the economy became clear Thursday, with the release of the September inflation and second-quarter economic growth figures. The results show that the cost of living hit 17.32 per cent in September 2011, against 3.21 per cent recorded in September 2010, a more than fivefold increase. Economic growth slowed down to 4.1 per cent in the second-quarter of 2011, compared to 4.8 per cent realised in the same quarter in 2010.
The Kenya National Bureau of Statistics (KNBS) says this is due to a combination of a weak shilling, high food and fuel prices. The rise in the latter two is directly correlated to the weak shilling.
"The period under review (second-quarter 2011) was characterised by a turbulent macro-economic environment, mainly driven by rising inflation and exchange rate depreciation, in addition to experiencing less than usual rainfall in most parts of the country,' KNBS says of the slowdown in economic growth.
The country is also coming from an acute shortage of sugar that lasted for most part of the month and resulted in a surge in retail prices, which pushed up the food and non-alcoholic beverages component of the consumer price index (CPI), adding impetus to the overall inflation rate.
'This is a very worrying time for the manufacturing sector, which has seen decreased demand in the last quarter, as Kenyans come face to face with the reality of high prices which have eroded their purchasing power. Unfortunately, to cushion themselves against increased cost of production, manufacturers have no option but to pass some of the costs to consumers through increased prices,' says Ms Betty Maina, Kenya Association of Manufacturers (KAM) chief executive.
In recent weeks, the Central Bank of Kenya has struggled to stop the shilling’s slide. On Tuesday, it announced plans to sell Forex directly to major importers, to shore up the depreciating shilling.