Inflation Shakes up Household’s Spending Habits

The cost of living concerns hit fever pitch in July when overall inflation rate reached 8.3 percent with millions of Kenyans struggling to stay afloat due to high prices of basic commodities.

The worsening situation has been compounded by the lingering political uncertainty brought about by the Presidential petitions challenging President-Elect William Ruto’s win.

The Supreme Court has scheduled a pretrial conference for today.

A growing number of Kenyans confess they are pressed to the wall, with many conceding that the present cost of living is unlikely to let up in the near future, going by the political pressure and weaker global economic growth. 

The country’s annual inflation rate has been rising on account of many macroeconomic factors including the Covid-19 pandemic but has intensified due to the ongoing global war between Russia and Ukraine.

You have noticed it at the petrol stations, in food prices, or in the housing and real estate market, and for those who follow activities at the Nairobi Securities Exchange (NSE), you definitely hear about it in the lips of billionaires’ investor talking points.

The ensuing effect of rising inflation which is a general increase in the prices of goods and services in an economy has led to a slow growth in consumer spending among Kenyans, with most households today opting for cheaper alternatives to the products they were accustomed to.

Kenya National Bureau of Statistics (KNBS) data shows that the Consumer Price Index (CPI) rose to 125.05 points in July from 124.22 points in June of 2022.

Ordinarily, when there is an upward change in the CPI, this means there has been an increase in the average change in prices over time, which eventually leads to adjustments in the cost of living and income. Inflation has affected growth in real income, thereby curtailing consumers’ purchasing power.

While nominal earnings continue to rise due to labour market tightening, real earnings have been on a broad downward trend since last year and more particularly since the advent of Russia-Ukraine war, according to Akur Barua, an economist with Deloitte. Barua believes that consumers will continue to substitute some items for cheaper ones, while reining in spending on discretionary items.

“Since essential items such as groceries are more difficult to substitute and with the prices of even cheaper substitutes going up, consumers, especially low-income ones, will need to cut other types of purchases,” he noted.

Consumers lose purchasing power when prices increase, and similarly gain purchasing power when prices decrease. Normally, the purchasing power depends on the amount of income a person makes adjusted for inflation.