Raw material costs rose twice as fast as consumer inflation last year in the wake of Russia’s war in Ukraine, a weakening shilling and the worst drought in 40 years.
The producer price index (PPI), which tracks the prices businesses receive for their goods and services, rose to an average of 15 percent last year from 7.4 percent in 2021 and 0.14 percent during the peak of Covid-19 economic hardships in 2020, says the Kenya National Bureau of Statistics (KNBS).
It rose faster than consumer inflation that averaged 7.6 percent last year, triggering a squeeze in household demand for goods, in particular non-essential goods.
Energy costs, including that of fuel and electricity, were the main driver of the upward trend in producer prices. The war in Ukraine has sparked a major shock on commodity markets after disrupting the production and trade of several commodities.
This mainly affected goods which Russia and Ukraine are key exporters of, including energy, fertilisers, and grains. These price increases come on top of already tight commodity markets due to a solid demand recovery from the Covid-19 disruptions, as well as numerous pandemic-related supply constraints.
In Kenya, the weakening of the shilling against the dollar means that importers of raw materials, including machinery, require more of the local currency for shipments.