Richard Bichang'a, 36 years old, trekked from Makadara to Uhuru Park for this year's Labor Day celebration. Bichanga who works with a firm at Industrial area earns Sh 4,000 per month. He had high hopes of salary increase to enable him meet basic needs and get married.
He walked home dejected as the Minister for Lobour, Hon John Munyes pronounced the Government's 12.5 percent minimum wage increase while matching from the podium to take his seat. “What should I do next?” he asked “with Sh 4,500.”
The Kenyan Government finds itself between a rock and a hard place from the raising cost of goods and services and the necessity to improve the purchasing power of its people.
The Government's step to increase the minimum wages will raise inflation further without putting in place long term strategies, says Dr X N Iraki, MBA Programme Coordinator, University of Nairobi.
Iraki says the way forward to bring inflation down is to make the Kenyan market more efficient in the supply of goods and services, put in place easy the means of clearing of goods at the port of Mombasa and enhancing transportation means across the country.
He added that nurturing a competitive market is another key factor to bring down inflation by bringing many players in every sector who can prevent quarks from the supply chain who not only evade paying tax to the government but also contribute to the raising prices of goods and services while lubricating corruption.
He said that tax reforms are urgently needed to salvage the manufacturers from high taxes they are experiencing and consumers, too. According to Betty Maina, Chairperson, Kenya Manufactures Association (KMA) says the manufactures are shouldering a 56 percent of their earnings in form of taxes and levies.
Prof Njuguna Ndung'u, Governor, Central Bank of Kenya (CBK) says price stability provides stable planning for the country and its ability to predict future prices and perhaps returns.
Ndung'u says inability to forecast prices leads to difficulty in coordination of investment which affects domestic prices to keep on raising and the country's productivity goes down. “We have to rethink of the appropriate measures of inflation and how to target to contain it.”
He says their monetary policies becomes passive when the supply of goods is the driving domestic prices and so inflation.
The Governor says bringing the cost of living down has been difficult from the increased challenges of controlling food prices, international prices and rate of exchange.
He said the high cost of living to food prices which account for 50.5 percent of the overall consumer spending. While attributing rising food prices to drought, supply chain and internal displacement of persons from the 2007 post election. However, agricultural experts say cost of food production is high in Kenya compared to other countries. They are calling for Government intervention.
The CBK Governor says unpredictability of food prices is the highest compared with that of fuel and transport and communication
The Monetary Policy Committee of the CBK had earlier predicted that famine and drought in the country will result the inflation experienced, now. What was required to save the situation was appropriate policy response to be put in place.
The CBK Governor says studies informed them that improved agricultural productivity was the effective way of addressing food crisis associated with higher international prices and food security. He said their goal was to be supported by an appropriate infrastructure for processing, storage and transportation of food.
However, International Monetary Fund (IMF) Working Paper says exchange rate movement and changes in oil prices are the most important factor determining inflation in Kenya while the contribution from monetary changes is small. But,the paper too confirmed that the inflation is influenced by food supply chains.
Kenya Policies for Prosperity, a book that was recently launched by CBK says in terms of a strategy for achieving food security in Kenya, the focus should be self-sufficiency in domestic production of stable crops. The Book notes that for the poorest people, Gross Domestic Product (GDP) growth in the agricultural sector is about four times more effective in poverty reduction than GDP growth from other sectors.
Nevertheless, experts are saying inflation scare away investors because it grinds a way the value of their investments. They argue that increasing salaries while inflation is increasing will reduce the demand of the consumers thus buying fewer goods and companies earning less.
On employment opportunities, many modern economist believe that unemployment increases with increase in inflation thus if the cost of goods and services are brought down job opportunities will be increased.
The KMA has expressed fear that increment of minimum wages in Kenya might lead to some companies laying off workers for their survival. While Kenya Private Sector Alliance (KEPSA) said any wage increase will be illegal as its supposed to done after every two years - recommended by the Wages Council. KEPSA argued the Kenyan inflation of 12.02 percent's from 9.19 percent in the month of March is a wake up call for the Government to deal with elements that are driving up the cost of living.
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