Tame food and oil prices to control inflation, EAC told

East African nations will not overcome the problem of teetering inflation unless they put in place measures to cushion their economies against food and oil price increases.

Economic experts attending a high level policy seminar in Nairobi on inflation in EA on Tuesday identified the two as key causes of inflation in the region.

They warned that absence of appropriate measures to deal with price fluctuations risks hampering overall Gross Domestic Product (GDP) growth in the region.

“The inflation tide has been dissolved, but there lies a need to look into the prices of food, and oil which have remained persistent,” said Central bank governor Njuguna Ndung’u at a press briefing on Tuesday while admitting the need to pair up control of food and fuel prices with the ongoing monetary interventions by CBK that were introduced to stem soaring interest rates and the galloping inflation.

Improved supply

In Tanzania, for example, food-based inflation accounts for 65 per cent of the total inflation compared to an average of 36 per cent in Kenya.

A recent food-price report by the World Bank Group indicates that between September and December last year, prices of food such as maize, wheat and rice declined by eight per cent due to improved supply.

The bank predicts that global food prices are set to remain high with annual food price index for 2011 exceeding the 2010 annual index by 24 per cent.

Kenya entirely depends on oil imports as it does not produce its own, leaving it exposed to changing global prices of crude oil.

According to Kenya National Bureau of Statistics leading economic indicators report for December 2011, total consumption of petroleum products declined by 3.4 per cent from 296,000 tonnes in November 2011 to 286,000 tonnes in December last year.

Fuel prices declined to an average retail price per litre of Sh113.39 in December 2011 from Sh124.85 per litre in November the same year.

Analysts predict a further nosedive in the prices of oil products owing to stability in international prices of crude oil and a recovery drive of the shilling against the dollar to a current average of Sh82.81.

Heavy reliance on imports without a corresponding match in the value of exports has impacted negatively on the country’s current account.

Speaking during the same event, Acting Finance Minister Njeru Githae said that Treasury was in discussions with CBK to find ways of dampening appetite for imports in a bid to step up local products demand.

If achieved, this will ease the pressure on the local currency whose value was eroded last year following a demand for hard currencies to finance imports which are estimated to have increased by 9.1 per cent in October 2011.