EAC continues to witness high cost of food amidst Russia-Ukraine war

NAIROBI, Kenya - The purchasing power across the Eastern Africa Region continues to be affected by the fallout of the conflict in Ukraine among other factors.

The price of a local food basket has increased by 49 percent over the past twelve months, with Somalia, South Sudan, and Sudan continuing to record the most expensive food baskets in the region (USD 31.8, 27.3, and 26.5, respectively).

Cereals and vegetable oils continued to push the cost of the food basket up, with Sudan recording a more than twofold increase in cereals prices since the conflict in Ukraine started. Nutrient-rich food continues to be less affordable than a year ago, with Sudan recording a more than twofold increase in milk price and Somalia recording a 44.5 percent increase in the cost of milk.

A report by Reliefweb [ReliefWeb is a humanitarian information service provided by the United Nations Office for the Coordination of Humanitarian Affairs (OCHA)] between July 2021 and July 2022, the cost of fuel went up by 62 percent, adding to economic hardship for people already struggling with high food prices.

Burundi has continued to suffer from fuel shortages since the conflict in Ukraine broke out, which resulted in more than a twofold increase in fuel prices compared to a year ago. The fallout of the conflict in Ukraine has also affected fuel prices in Somalia, which increased by almost 92 percent compared to a year ago.

It also reveals that Sudan kept on recording hyperinflation of 125.4 percent in July 2022, whilst Ethiopia, Rwanda, Burundi, and Djibouti continued to record double-digit inflation. Soaring fuel and food prices coupled with a prolonged drought accelerated the annual inflation rate in Kenya (8.3 percent, the highest rate since June 2017.

South Sudan, among all the East African countries in the region that recorded double-digit food inflation in July 2022, stressing food is becoming less and less affordable.

Average regional food inflation stood at 27.9 percent, pushed up by Sudan (recording the highest food inflation rate in the region at 83.7 percent), Ethiopia (35.5 percent), and Rwanda (32.7 percent). In Somalia, food inflation was more than double that of annual inflation.

Most currencies across the region depreciated against the U.S. dollar between July 2021 and July 2022; with South Sudan and Ethiopia recording the highest year-on-year depreciation in the official and parallel market. Kenya and Uganda also saw their domestic currencies losing value against the USD, however to a lesser extent.

In Kenya, the region’s largest economy, inflation hit 8.5 percent this week — the highest in 62 months —from 8.3 percent in July, on a surge in food and fuel prices. On August 31, the shilling also had fallen 0.03 percent to Ksh120.05 against the US dollar.

The country’s foreign reserves had fallen to $7.6 billion— equivalent to 4.39 months of import cover —during the week ending August 25, from $7.74 billion, equivalent to 4.46 months of import cover, during the week ending July 28.

Kenya’s inflation overview

African foreign exchange firm -AZA Finance-foreign currency dealers’ association had warned that the political instability in Kenya would continue to weigh heavily on the local currency in the coming days, possibly surpassing the Ksh120 level against the greenback.

A local property consultancy -Knight Frank predicts that the Kenyan currency will depreciate a little further but stabilize by the fourth quarter (October-December).

Kenya National Bureau of Statistics (KNBS) in its monthly data survey the country’s inflation figures have been on an upward trend from a low of 5.1 percent in February before Russia’s invasion of Ukraine disrupted supply chains, pushing up global energy and food prices.

The situation has been compounded by the removal of a government food subsidy that had seen the price of a two-kilogram packet of maize flour fall to Ksh100 ($0.83) from Ksh240 ($2).

World economic status

Globally, inflation in the Eurozone hit a record high of 9.1 percent in August fuelled by soaring energy costs exacerbated by the war in Ukraine.
The United Kingdom currently has the worst inflation of all the G7 countries, hitting 10.1 percent in the 12 months to July.

In the US Federal Reserve chairman Jerome Powell said on August 26 that the monetary policy could be kept tight ‘for some time to stem the rising inflation. The US central bank has so far overseen three consecutive rate increases of 75 basis points to deal with high inflation.

GAROWE ONLINE