People have been impacted by the increasing cost of living and also the reduction in income from the aftermath of the pandemic. Looking at the inflation data, the people who have been greatly impacted are the Nairobi lower income group and the rest of the country whose inflation rates were 5.8% and 6.6% compared to 3.7% for the upper income people in Nairobi according to the March data from the Central Bank. The main reason for this is that they spend much of their income on food and other basic commodities which have seen significant increases.

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Some of the factors leading to an increase in inflation include:

1. Increasing Oil Prices: The global oil prices have been on the rise with the crude oil being up over 80% over the last twelve months due to the global economic recovery and supply constraint by the OPEC countries. The above increase has led to a significant rise in local fuel prices with the petrol prices having increased by 43% over the last 12 months. Petrol prices have touched an all-time high of Kshs 127 in Nairobi. With the crude oil prices still projected to continue increasing there is a huge risk that we shall continue to witness increases in the local pump prices.
   

2. Food Prices: Food prices account for 33% of the inflation basket meaning that for most people especially the lower income spend an average of this amount on food. This year the rainfall has been below average and we have seen the cost of food increase by 8.5% over the last twelve months. The fuel prices have further compounded the issue on the food prices due to the transportation of the same.
   

Looking at the above key challenges it is therefore important for both the government and individuals to look at ways in which they can create a hedge towards the high cost of living. Some of the things that the government can do include:

1. Increasing Food Production: for any country to grow it is important that they are close to food sufficient. This can be done through measures to improve food productivity levels like subsiding farm inputs, increasing the amount of land under food production, reducing reliance on rainfed agriculture and helping create a market for the agricultural produce.
2. On the oil prices given that we are price takers as a country the best that we can do is try to offer some subsidies indirectly through looking at the taxation framework of the petroleum products
3. Looking at growing the reliance on other forms of energy sources like Geothermal and Solar shall help reduce the cost of electricity. This again can be done through looking at the taxation framework.
   

For the individuals:

1. It is now more important than ever to relook at our household budgets and cut down on all the non-essential expenses and also look for cheaper substitutes for the goods and services that we consume. Given the amount of money we spend on food one can consider embracing more innovative subsistence farming for the basic goods like the daily in use vegetables.
2. On the investment front it is very important that we start looking at investments that offer an inflation hedge so that the cash we hold is not losing in value and might not be able to achieve the objective we were setting it for. Always ensure that the return on your investments is above inflation.
   

With the expectation of more cost driven inflation it might take time for the higher costs to stabilize and start coming down. The monetary policies remain sufficient as the inflation we see is not the core inflation and so not a big risk to economic growth. With the currency and the interest’s rates anchored we don’t expect to see significant changes to the overall macroeconomic environment but it’s time to rethink some of the key policies.