Manufacturing in Kenya racked by high costs on global supply chain woes

Manufacturers in Kenya experienced a tough year that saw them incur the highest costs of production since 2019, reflecting a difficult macroeconomic environment chequered with high costs of primary goods, receding economic activity and worldwide supply chain disruptions.

Latest data from the Kenya National Bureau of Statistics indicates that producer inflation—a seldom heard economic indicator measuring variation in prices of goods before they land on retail stores from manufacturers’ warehouses—reached 15.78 percent in September 2022, compared to 7.72 percent and 1.4 percent during a similar month last year and 2019, respectively.

“The third quarter year-on-year producer inflation was 15.78 percent in September 2022 compared to 7.72 percent in September 2021,” said KNBS.

The Producer Price Index (PPI) peaked at 16.53 percent in June, with the Russian invasion of Ukraine being blamed for the notable spike in production costs in the second quarter.

Russia’s militry blockade of Ukrainian seaports discontinued wheat and edible oils exports from country, causing the increase in prices of concerned commodities, while elevated risk of shipping via the Black Sea worsened shipping costs.

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Following a compromise brokered by Turkey and the United Nations, the price for a tonne of wheat came down from a high of $540 in April to $365 in August.

Europe’s biggest conflict since the end of World War II started in late February, with it’s negative effects taking root in the second quarter as seen in April wheat prices.

Additionally, costs of raw materials spiralled on a depreciating value of the Kenya Shilling, leading manufacturers to spend more shillings on imports also, somewhat contributing to higher production costs.

The high Producer Price Index rallied the Consumer Price Index as seen in generic inflation which continuously increased in the nine months to November, before showing signs of cooling in December.

Inflation dipped by a tenth of a percentage point from 9.6 percent in November to 9.5 percent in December.

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