The price of oil has so far fallen by around 22% while that of electricity is down by almost 21%. These two are the most influential cost variables in Kenya and in almost every other part of the world. Manufacturers in Kenya have however warned that the prices of consumables are yet to follow this downward trend in prices. We might have to wait for over three months for this fall in costs to be transferred in to a fall in prices. Economists had prior observed a fall in the general prices of goods even before the effect of these two major cost variables.
The fall in prices must not necessarily prophesy economic doom as the outcome of the fall is dependent on the cause of the fall in prices. The prior fall that had been observed by economists, which was unaccompanied by any considerable fall in costs was not a thing to celebrate. Though it was a show of success of the tightening policy that had been implemented by the Central Bank sometimes back in 2012, it was a spiral that would have seen us in a worse situation than that of inflation. Here is the thing, if prices are falling, let it be because of a fall in costs than in the fall of demand.
Economic relations are very complicated. They don’t allow us to effect change overnight; neither must they adhere to our predictions. Unlike a class two mathematical problem of addition and subtraction, what may appear as an economic subtraction may eventually, after examination of relations surface as a double subtraction or an addition even. There is need to examine variables keenly before matching on the roads asking for a price decline. But genuinely, the fall in the two costs I mentioned earlier is significant enough to warrant a downward revision of prices.
The question is how this will be done, for fixing it as a ratio will affect different manufactures differently. The market is so imperfect that we may wait forever for a price fall that will never come. What we need to assure ourselves however, is whether the fall in prices of electricity and oil is not seasonal. For if it is seasonal, and we quickly adjust our prices downwards, then after a while the two rise to their prior levels, we will not only have a widespread unemployment, as wages which are certain to rise cannot be revised downwards, but also the problems of instability and a deflation to deal with. After a price fall, we might have a period of prosperity for all, followed by that of prolonged hard times for all.
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