Import inflation on the corner as tax and food prices rise

Manufacturers are warning on a spike in prices driven by higher transport and import costs and weak shilling.

Kenya Association of Manufacturers (KAM)-KPMG survey on the impact of COVID-19 showed that cost of logistics, raw materials and foreign exchange had all gone up pushing up production inputs, which is likely to reflect on goods at your local retail and supermarket.

Imported inflation is coming at a time when Kenya is already struggling with tax inflation and food inflation that has driven the cost of living to a 16 month high of 6.32 per cent in June.

“Any new tax or increase in existing taxes should be avoided as this would increase costs and reduced profitability and has the potential to slow recovery of businesses and even their collapse,” KAM said.

KAM said they witnessed increased sea freight costs as US demand for goods from China following its steady economic recovery is pushing up competition for containers and shipping lines.

For example, sea freight cost of a 20-foot container from China main port to Mombasa port was $800-$900 in March 2020, but it jumped to US$ 2,500-3,000 in March 2021.

Read also: Wheat, clinker see Port register 10 per cent growth in first quarter cargo traffic

There has also been an increase in cost of imported raw materials in the international markets, for instance, price per ton of crude palm oil has increased to $1,300 in June 2021 compared to $700 before the onset of the pandemic, approximately 54 per cent increase in price.

Manufacturers point out the World Bank estimates that steel prices will be 30 per cent higher in 2021 compared to 2020.

They also say the weakening of the Kenya Shilling against major international currencies may also push up cost of imports as local businesses need more shillings to buy the same value of dollars.

The Kenya Shilling depreciated by 4 per cent against the US Dollar to trade at an average of Kes 107.43 in May 2021 from Kes 103.74 in March 2020.

Cost of imports has a big impact in retail pricing since Kenya imports a huge chunk of finished goods and raw materials for locally produced goods.

The study showed that slightly less than half of the manufacturers face difficulties in sourcing raw materials for their production with majority being importers of raw materials.

Due to supply chain disruptions, most of the surveyed firms (51 per cent) have resorted to expanding their supply network to replenish their stock while 40 per cent have increased stock levels of their raw and intermediate materials

The need to source for alternative suppliers and hold more inventories further increases logistics costs and causes liquidity constraints.

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