The Kenyan manufacturers had said something about falling consumption (or substitution for cheaper alternatives) and rising inflation as the current prevailing conditions

For various goods that are 'protected' e.g. cement, cigarettes, beer, etc from 'foreign' competition through barriers like tariffs/duties/quotas inflation does hurt them since there creeping inflation on the SUPPLY SIDE.

Example: Higher electricity prices (due to higher thermal generation based on 'expensive' diesel) affects cement production costs.


I always thot that when prices rise normally (not zimbabwe-type rise) people save more cash to buy stuff (cos stuff costs more) and the lack of demand (for say manufactured goods) pushes prices back down, thus back to equilibrium.

There is a MINIMUM level of 'spending' required. If the cost of this basket of goods (food, electricity, clothes) costs more then there is less left to 'save'. You can't 'save' more if stuff costs more.

I'm thinking the reason why inflation is still declining in Kenya to 5% is because that equilibrium has not been met.

The inflation calculation was changed from arithmetic to geometric. Apples to Oranges. Or in Kenya... bananas to oranges...

Great story in BD today about our debts and the stimulus package. IMF thinks that the government should "...stop spending more money than the economy can finance...", but do they think they don't say that the private sector can pick up the 'spending' slack. The current trend is the global trend and we're still missing the targets on our tax revenues.

The stats from the latest weekly bulletin indicate that domestic debt is up 29% with interest payments on this debt up 37% y-o-y. Although T-bills outstanding were up 62% y-o-y T-bonds outstanding were up 26% on T-bonds (which in numbers is a massive Kshs84 bn (net) raised domestically since Dec-08).

IMF further argue that "Kenya's public debt...should be scaled down to a target ratio of about 40% of GDP for it to be sustainable without raising creditors' fears of a possible default." Who are our main creditors? I think it was split 50:50 between foreigners and domestic. Who would be most fearful among them and what would they do if they think we'll default?

Last interesting comment is from a standard bank analyst saying "...there is little risk that the stimulus spending will stoke inflation, adding that weak growth in monetary aggregates should give the CBK the licence to forge ahead with its stimulus spending programmes." I'm sure this is something that has been endlessly debated, who exactly stokes the inflation? The monetary aggregates referred to could be the M1 and M2 aggregates. M1 growth has been weak (compared to previous year) at just over 10% y-o-y as many Kenyans had cut done on their consumption. So maybe it's the higher M1 growth that is needed (such as during the safcom IPO time) for the higher risk of inflation to materialise.

Nothing can be done once the train gains momentum, so we must look at the impact of debt repayments. Investment banks that deal with bonds should well the news given by John Mutua of IEA where he says "...some of the projects built under the stimulus programme will still require a maintenance budget in future, making it harder for treasury to shrink its expansionary budget". This makes perfect sense and makes the future all the more uncertain.

http://www.businessdaily...48/-/6a4x4l/-/index.html

@vvs. You’re quite right. Dropped by my broker today and they told me that retail investors have been trickling in slowly. I guess people are starting to invest again. With you guys watching market prices so closely, it's only a matter of time b4 the young crowd (uni guys) start piling into the market.

The IMF thinks interest rates will rise due to an expected economic recovery but how well is private sector credit really growing? IMF indicated that the third qtr GDP performance was dismal (growing by 0% vs 4.0% & 2.4% in QTR 1 & 2) and shouldn't the warning now prompt investors to anticipate a decline in the stock market.

IMF doesn't advocate for a reduction in the stimulus but wants stakeholders to be watchful of inflation. But then the market basket is expected to be re-weighted next month to include other variables such as the cost of telephony. One would believe their monitoring capability would be severely hampered by this.

The Fund believes high foreign investor participation is contingent on low political risk by way of a smooth constitutional process, but, is this too ambitious given our history and make the portfolio FDI currently driving our market rally more volatile.

Find out more at:

http://www.businessdaily...36/-/6aky0i/-/index.html

Excerpt from a recent World Bank report "...in October 2009 the government adopted a new methodology for measuring inflation in line with international good practice. The new methodology removes the upward bias which was particularly sensitive to volatile food prices.

The new methodology provides a more accurate assessment of prices changes creating more certainty for business and labor...the government has also announced an adjustment in the basket of consumer prices in February 2010, reducing the weight of food in the CPI from 50% to 40%. With this additional adjustment, overall inflation is expected to decline further".

There are two main broad types of methods to aggregate price data. Until October 2009, Kenya has been using the arithmetic mean (linked Carli Index)...KNBS shifted to a weighted geometric mean (Jevons Index). World Bank Report.

Read more:

http://en.wikipedia.org/...of_price_index_formulas

Bob Prechter explains why the Fed's actions are more likely to create an inflation mirage rather than the real thing.

Read more:

http://www.elliottwave.c...0%94Mostly-a-Mirage.aspx