The latest MasterCard Worldwide Survey revealed that 76 percent of Kenyans are committed to increasing their savings in the next six months. The impact of global events on the Kenyan market was cited by 79 percent of the respondents as the chief reason for wanting to save regularly. They felt that they needed to prepare for unforeseen emergency expenditure.

What are these global events, what are the trends and, more importantly, should we be worried?

Crude Oil

Events in the Middle East have had a significant impact on the Kenyan market. According to Kenya Petroleum Refineries Ltd (KPRL) most of the crude which the refinery processes is imported from the Middle East.

Crisis in the Middle East has resulted in mixed reactions on international crude oil prices over the past 21 months. The graph below shows a comparison in international crude oil prices in the year 2011 and 2012.

[caption id="attachment_25181" align="alignnone" width="658"] Data sourced from Abu Dhabi National Oil Company[/caption]

International oil prices have a significant impact on our spending capacity. It’s no secret that rise in oil prices will have a significant impact on local transport costs. It also has an impact on our electricity bills given the fact that a portion of electricity on the national grid is generated from diesel powered generators.

Rise in international oil prices could translate in higher costs of diesel used in power generation. Such costs are in turn transferred to the consumer. There’s the overall effect of international oil prices on local food prices in form of high costs in transporting food from areas of production to markets.

From the graph above, international oil prices have been unstable through 2011 and 2012, ending the year almost 10 dollars above where they started.

Exchange Rate

The mean exchange rate has significantly improved in 2012 as compared to 2011. The graph below gives a clearer picture of this:

[caption id="attachment_25182" align="alignnone" width="658"] Data sourced from KNBS[/caption]

It’s no secret that strength of the shilling has an impact on our purchasing power. It affects local oil prices due to the fact that it affects our ability to purchase crude oil and petroleum products from the international market.

It also has an effect on local electricity bills. The rate charged on the Forex adjustment component electricity bills is determined by strength of the shilling. A weak shilling translates in higher Forex adjustment charge which subsequently translates in higher electricity bills. A strong shilling translates in a lower Forex adjustment charge which in translates in lower electricity bills.

The graph above shows that shilling strengthened in 2012 as compared to 2011, meaning the shilling had higher bargaining power in 2012 as compared to 2011.

Despite the unstable nature of the international oil prices and strengthening of the shilling, Kenya’s Consumer Price Index (CPI) has been on an upward trend.

The CPI measures changes in the price level of consumer goods and services purchased by households. CPI in Kenya is released by Kenya National Bureau of Statistics (KNBS). The numbers are generated using data collected during the second and third weeks of the month under review. The prices are obtained from selected retail outlets in 25 data collection zones located in 13 urban centers.

An increase in CPI means there was an increase in the price level of consumer goods and services purchased by households over a certain period as compared to a previous period.

The graph below shows the trend in Kenya’s CPI from 2011 to 2012.

[caption id="attachment_25183" align="alignnone" width="658"] Data sourced from KNBS[/caption]

From the above, one can conclude that price level of consumer goods and services has been higher in 2012 than in 2011. In as much as this is the case, the overall rate of inflation has been lower in 2012 as compared to 2011. Check out the graph below.

[caption id="attachment_25193" align="alignnone" width="620"] Data sourced from KNBS[/caption]

Change in rate of inflation is a percentage difference in CPI on an annual basis. For instance to find the rate of inflation for October 2012 you will find the difference between October 2012 and October 2011 CPI, then get the percentage of that.

October 2012 – October 2011 = Difference

Difference/October 2011 x 100 = Rate of inflation for October 2012

In as much as the shilling has shown signs of strengthening, plus international oil prices have been showing mixed reactions, the CPI has been on an upward trend from 2011 all through to 2012.

This calls for some level of concern. Projecting this trend into 2013, there is a possibility that the CPI would continue to be on an upward trend in 2013. This means price of consumer goods and services could continue to rise in 2013. Maybe the 76% have a valid reason to be worried after all.