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Nairobi’s rich gain most from falling December inflation

Nairobi’s rich families emerged the biggest beneficiaries from the fall in inflation in December, helped mainly by the sharp drop in electricity and motoring expenses.

Data from the Kenya National Bureau of Statistics (KNBS) shows that the city’s upper income households and residents living outside Nairobi were the only segment that recorded a drop in the cost of living measure.

This helped cut the overall inflation to a 17-month low of 6.02 per cent given that other segments, including Nairobi’s lower and middle income homes, recorded a rise in inflation last month compared to November.

The KNBS data shows that average inflation for wealthy city homes stood at 3.19 per cent last month, down from 4.25 per cent in November—marking the third consecutive drop in a month.

CONSUMPTION PATTERN

Nairobi’s lower income segment saw its inflation increase to 4.87 per cent while that of middle-class homes rose to 3.61 per cent from 3.30 per cent.

KNBS attributed the contrast in the inflation levels among income segments to different consumption patterns, adding that the rich spend most of their income on utilities and transport while the poor use nearly half of their income on food.

Nairobi’s middle class spends on average of 22 per cent of their income on food, the wealthy use seven per cent while poor households spend 42.5 per cent.

But the city’s wealthy on average spend the largest portion of their income on transport at 27.9 per cent, explaining their exposure to rising motoring expenses.

While food prices have dropped since August, electricity and fuel prices have dropped by a bigger margin, offering relief to the top earners.

Before August, Nairobi’s upper income households were the most exposed to inflationary pressures, signalling a shift that has seen the city’s poor the hardest-hit.

At 3.19 per cent, Nairobi’s wealthy have seen their inflation drop by 6.39 percentage points since August, compared with 2.78 percentage points and 2.62 for the middle and lower income segments respectively.

The national average has dropped by 2.34 percentage points since August.

FUEL PRICES

The Energy Regulatory Commission has cut the retail prices of diesel, petrol and kerosene to reflect the rock bottom crude prices, which has recorded the biggest annual drop last year.

It has cut a litre of diesel by Sh12.13 to Sh90.85 in Nairobi since August and that of kerosene by Sh11.68 to Sh71.37 per litre.

The price of petrol fell by Sh14.61 per litre to Sh102.01, a boost to the upper class who rely on the product to power their cars.

Fuel prices have a big effect on inflation in Kenya, which relies heavily on diesel for transport, power generation and agriculture, while kerosene is used for cooking and lighting.

Electricity prices have since September dropped by between 18.7 per cent and 27.4 per cent following the injection of 240 megawatts of geothermal power into the national grid. 140 megawatts were added in late July, 70 megawatts on September 16 and another 70 megawatts in November.

The bureau defines low-income earners as those spending less than Sh23,670 monthly, middle class (between Sh23,671 and Sh120,000) and upper income as households with expenses in excess of Sh120,000.

KNBS examines consumption data for Nairobi separately because it has increased its share of the national wealth over the past five years despite government efforts to encourage investments outside the city.

Official data shows that the capital city accounted for more than a third of the country’s labour earnings and more than half of the top earners.