Consumers feel tax pinch as prices continue to soar
By Judith Gicobi
According to the latest economic health indicator report for the manufacturing sector, additional taxes on suppliers and rising fuel prices left Kenyan businesses battling with higher operating costs in the month of February.
Despite businesses’ resumed expansion activity last month, the Stanbic Bank Purchasing Managers’ Index (PMI) shows that input costs climbed at their quickest rate in 41 months, prompting businesses to pass on growing prices to customers as they respond to inflation.
Domestic consumption, according to analysts, rebounded substantially in February, owing to higher consumer numbers following a drop in Covid-19 cases and intensified marketing efforts by companies.
Kenya’s headline PMI increased from 47.6 in January to 52.9 in February, crossing the 50.0 neutral threshold. The index indicated a significant turnaround in the health of the private sector economy, aided by a rebound in economic activity as Covid-19 cases shrank.
The PMI study looked at variables including output and input price inflation, which are both leading indications of future consumer pricing adjustments.
Overall input cost inflation was at its highest since September 2018, it said, adding that output charges were raised at a steady pace in response.
Despite the fact that the Kenya National Bureau of Statistics (KNBS) recently released a report stating that monthly inflation fell to 5.07 percent in February, there is little reason to rejoice because the overall cost of vital commodities stays high.
Experts say that this paradox, in which inflation falls yet basic costs rise, is due to the limited influence of government subsidy programs, high tax burden, and high cost of raw material importation induced by global supply chain snarls. According to Kamau, the recovery in demand allowed businesses to raise output prices at the quickest rate in three months in order to pass on increased input costs and safeguard profits.
“While the 12-month outlook by firms rose marginally from January, it is now at a 5-month high as concerns around the Covid-19 pandemic begin to dissipate,” he noted.
Purchasing activity increased strongly and at the fastest rate in 16 months, signaling strengthening commodity demand despite rising input prices and worldwide shortages, according to the PMI.
Manufacturers are already battling with a shortage of raw materials and costly international shipping delays, which have intensified as a result of the Ukraine-Russia tensions.