Households cut back on savings as inflation bites
By Herald Aloo, October 25, 2022As the cost of living hits new levels with earnings remaining stagnant for the past three years, Kenyans are feeling the pinch with most low-income households forced to cut expenditure to cope with the inflationary burden.
The annual inflation rate in the country accelerated for the seventh consecutive month to 9.2 per cent in September of 2022, above market forecasts of 8.6 per cent and the ceiling of the central bank’s target range of 2.5 per cent to 7.5 per cent.
It was the highest inflation figure since June of 2017, amid a continued sharp increase in the cost of food, fuel, and housing. On a monthly basis, consumer prices were up 0.9 per cent, after a 0.4 per cent rise in the previous month.
Households are now channeling nearly all their expenses to necessities like food, housing and energy. However, even these have all witnessed some of the biggest hikes in prices at different points in the past one year. Most people said that side jobs supplement most household’s current thin budgets. Experts say the amount someone earns, where they live, and what they buy affects what they can comfortably afford dictate how they can balance their expenses to beat the odds.
A spot check by Business Hub on how Nairobians are coping with the new reality, revealed a desperate attempt by several residents to remain a float during the tough times.
Some of the consumers interviewed said they have been forced to constantly look out for discount offers to save their tight budget while others have stopped saving because there is no money.
Bank accounts
“What I’ve done is to reduce saving, you will find that like before I used to save a lot in ‘chamas’, bank accounts and also buy shopping in bulk but now I have to buy goods in small amounts because there is no money,” said Alice Wahito, a trader within Nairobi’s Central Business District (CBD).
A number also buy household goods in bulk to take advantage of discounts offered by Supermarkets while others have cut down on journeys and reduced the quantity of meals they take as a result of the declining in purchasing power.
“I’m forced to downgrade from my previous lifestyle, because let’s say I used to buy 2kg of maize flour. Nowadays I’m buying 1kg of the maize flour and sometimes it’s difficult” said Allan Muliro, a guard.
With more inflationary pressures expected this month due to increase in the prices of electricity, some Kenyans are considering cutting their expenses on perishable food items and electric appliances which require constant energy for preservation. Most consumers of alcoholic beverages say that they have since downgraded favourite drinks due to the high cost of living.
Data by Kenya National Bureau of Statistics (KNBS) shows Consumer Price Index (CPI), which measures the change in prices of goods that is representative of the average consumer, reached 126.73 in September. Food forms the largest weight on CPI, at 32.9 per cent, followed by energy and transport. This implies that spending on products and services like alcoholic items, savings, and insurance covers have currently been put on hold or reduced by a majority of the poor households. “I stopped taking my regular Tusker over the weekend and opted for Gin so that I do not drink my children’s school fees,” said Joel Kibet, a furniture trader in Kitengela. “I have to tell my kids back home to understand the situation, like there are some meals I was forced to do away with because I’m not capable of providing, also apart from selling these jackets I also do other side hustles like washing people’s clothes so I can be able to sustain my family,” said Grace Njeri, a hawker in Nairobi.
Basic consumer goods, which are unfortunately the main consumables by the poor, form the majority of fast-moving goods available in the market, making them the prime target of government’s tax plan aimed at cushioning the government’s revenues from being eroded by imported inflation.
Developing economies
The World Bank estimates that low-income households in emerging and developing economies like Kenya spend roughly 50 percent of their income on food unlike their rich counterparts’ 20 percent expense.
Wealthier citizens always have a good savings buffer in form retirement, investments, and mortgages thus shielding them against rising cost of living. Substantial retirement savings and investments tend to outpace inflation in the long run, meaning the wealthy will simply pass-on extra tax and inflation-related surges to those on the lower strata through hiked charges.