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NAIROBI, Kenya, Oct 27 – The depreciation of currencies in most developing economies such as Kenya is driving up food and fuel prices in ways that could deepen the food and energy crises that many of them already face, a new report warns.
The Kenyan shilling has been vulnerable to world currencies, exchanging at 121.23 to the US dollar on Thursday morning, according to the Central Bank of Kenya.
It has lost value by about 10.3 per cent compared to the same time last year when it exchanged at Sh109.90 to a unit of the dollar.
With Kenya being an import-dependent country, the currency depreciation has seen the price of commodities shoot as importers pass on the high costs to consumers.
Meanwhile, In U.S. dollar terms, the prices of most commodities have declined from their recent peaks amid concerns of an impending global recession, the World Bank’s latest Commodity Markets Outlook shows.
From the Russian invasion of Ukraine in February 2022 through the end of last month, the price of Brent crude oil in U.S. dollars fell nearly 6 per cent.
Even so, due to currency depreciations, almost 60 per cent of oil-importing emerging-market and developing economies saw an increase in domestic-currency oil prices during this period.
In Kenya, petrol is currently retailing at Sh178.30 while diesel retails at Sh146.94.
The prices remain elevated despite a drop in the average landed cost of imported Super Petrol by 10.6 per cent from USD812.91per cubic metre in August 2022 to USD726.77 per cubic metre in September 2022.
The landing cost of diesel also decreased by 6.87 per cent from USD949.68 per cubic metre to USD884.46.
Elevated prices of energy commodities that serve as inputs to agricultural production have been driving up food prices, the report notes.
In September, Kenya’s inflation hit a five-year high of 9.2 per cent, driven by a sharp increase in the cost of food and fuel o, the Kenya National Bureau of Statistics (KNBS) said.
The last time the country witnessed this kind of inflation was in June 2017 when it hit 9.21 per cent.
“Although many commodity prices have retreated from their peaks, they are still high compared to their average level over the past five years,” said Pablo Saavedra, the World Bank’s Vice President for Equitable Growth, Finance, and Institutions.
“A further spike in world food prices could prolong the challenges of food insecurity across developing countries. An array of policies is needed to foster supply, facilitate distribution, and support real incomes.”
Since the outbreak of the war in Ukraine, energy prices have been quite volatile but are now expected to decline.
After surging by about 60 per cent in 2022, energy prices are projected to decline 11 per cent in 2023.
Despite this moderation, energy prices next year will still be 75 per cent above their average over the past five years, World Bank notes.
The price of Brent crude oil is expected to average USD92 a barrel in 2023—well above the five-year average of USD60 a barrel.
“The combination of elevated commodity prices and persistent currency depreciations translates into higher inflation in many countries,” said Ayhan Kose, Director of the World Bank’s Prospects Group and EFI Chief Economist, which produces the Outlook report.
“Policymakers in emerging market and developing economies have limited room to manage the most pronounced global inflation cycle in decades. They need to carefully calibrate monetary and fiscal policies, clearly communicate their plans, and get ready for a period of even higher volatility in global financial and commodity markets.”
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