Drought and high fuel prices driving inflation in East Africa

Nairobi — Rising inflation is threatening East Africa Community’s economic growth.

From Nairobi to Dar es Salaam and Kampala, all signs point to surging inflation in the region in the coming days. An array of issues from drought to food scarcity to escalating oil prices continue to pile pressure on households’ expenditure. Political crises in Arab North Africa and Middle East countries have caused fuel prices to shoot up, raising inflation in the past few weeks because the cost of oil, a major export of Middle East countries, has been going up. With the cost of energy expected to come under intense pressure in the coming months as the political crisis in oil-producing Libya and the Arab world persists, and dry weather piles pressure on food prices, inflation too is expected to remain on the upward trend, to become the biggest threat to EAC’s fragile economies. Consumer prices inflation in Kenya rose to 6.54 per cent in February from 5.42 per cent in January — moving further away from the official target of below five per cent. The Kenya National Bureau of Statistics attributes this to the ongoing surge in the cost of transport, food and electricity. In Kampala, a 2 per cent jump in food prices in February pushed the country’s headline inflation rate higher to 6.0 per cent for the fourth month in a row, the Uganda Bureau of Statistics said last week. Over the past 10 years, the average price of all commodities in Uganda has increased by 86 per cent, with statistics showing rent, fuel and utilities seeing the biggest change in prices between 2000 and 2010 by as much as 103 per cent. Rising food and fuel prices coupled with a chronic energy shortage are expected to push Tanzania’s inflation rate back to double-digit levels this year, analysts say. The country’s year-on-year inflation rate was up for the third successive month to 6.4 per cent in January, up from 5.6 per cent in December. … Inflation rates in East Africa are more often than not determined by the weather because food carries significant weight in consumer price baskets. The region relies heavily on rain-fed agriculture and drought in the past few years has hit the economies badly. The rising inflation is now emerging in the radar of policy makers after being in the back burner for a while. Central bankers and analysts alike are worried by the surging threat of inflation. “We expect the recent dry weather to have an impact on food prices; rainfall has not been regular and agricultural production has not been as expected. This will have pressure on food markets. Oil prices are also rising,” said Francois Kanimba, the governor of the National Bank of Rwanda. … Tanzania is currently facing an energy crisis that shows no signs of abating. On top of outtages, the power company Tanesco recently raised tariffs by 18.5 per cent, fuelling inflation to 6.4 per cent in January. In Kenya, fuel prices have soared above the Ksh100 ($1.25) a litre in most pump stations trailing the rise in crude prices above $110 a barrel as revolution spread in North Africa and the Middle East. … In Rwanda, food prices are expected to rise sharply owing to low rains that reduced agricultural production in most parts of the country. Agriculture output, the backbone of the Rwandan economy is projected to drop to 6 per cent this year from 7.2 per cent registered last year. “Agricultural performance in Season A has been disappointing, and as a result, this might trigger an increase in prices of foodstuffs, which comprise the largest share of the Consumer Price Index, the main measure of consumer prices,” said Rwanda’s governor. …

Drought and High Fuel Prices Driving Inflation in East Africa via The Oil Drum