This archive report was first published on 5 August 2019.
Published on August 5, 2019, by James Anyanzwa
East Africa's inflation rate is expected to rise due to food shortages and depreciating currencies.
According to the latest data, East African countries, except Rwanda, recorded increases in the prices of goods and services during the six months to June, largely driven by increased food and fuel costs.
East Africa's annual average inflation is forecast to rise to 3.9 per cent this year and 4.8 per cent in 2020, from 3.6 per cent in 2018, blamed on unfavourable weather conditions that led to late planting in some countries.
Food prices started rising in April in Rwanda due to a prolonged drought, which impacted the planting seasons of several East African states.
Over 70 per cent of the firms sampled in Rwanda increased prices for their goods during the period, according to a survey carried out by the National Bank of Rwanda.
Governor John Rwangombwa said inflation in Rwanda is expected to rise to three per cent this year due to a weaker local currency, uncertainties around Brexit, and global trade tensions.
The region's weakening currencies pose a risk to the inflation outlook because they make imports more expensive and these costs are usually passed on to consumers.
For instance, the Kenyan shilling has come under intense pressure, with forex dealers blaming it on increased demand by importers and excess liquidity in the market following the government's plan to phase out the Ksh1,000 currency note from October 1.
The Kenyan shilling weakened against the dollar to a five-year low, trading at around Ksh104, and forex reserves dropped by Ksh18.6 billion.
Analysts at Sanlam Investments Ltd warned of the risk of further erosion through increased food imports.
A weaker shilling would impact the prices of fuel and imported foodstuffs.
Kenya's import bill of petroleum products increased to Ksh327.8 billion ($3.1 billion) in 2018 from Ksh265.2 billion ($2.5 billion) in 2017 from higher international oil prices.
Kenya estimates that 1.6 million people in the country are currently food insecure, up from 1.1 million in February, and this number is expected to increase to over two million by September.
