Policy Brief No. 01 of 2023-2024 on Cost of Living and the Role of Markets

Abstract

This Policy Brief is based on the Kenya Economic Report (KER) 2023, themed ‘Cost of Living and the Role of Markets’. As the economy started recovery from the adverse effects of COVID-19 pandemic, it was hit by a prolonged severe drought and global supply chain disruptions, which saw inflation rapidly increase from 5.1 per cent in February 2022 to 9.6 per cent in October 2022, and marginally declined to 7.3 per cent in July 2023. Various policy measures were employed to contain the high cost of living, including subsidies on essential commodities, increase in minimum wage and tightening of monetary policy. This notwithstanding, markets are more efficient in resource allocation, coordination and distribution. The KER 2023 considers three broad markets comprising of the factor, product and financial markets. The factor markets are the markets for inputs used in production processes including markets for labour, land and capital. The product markets are markets for goods and services, while the financial markets aid in financial intermediation, such as savings and credit. The analyses in the Report also covered enablers of well-functioning markets, including macroeconomic stability, rules that define the conduct of the market participants, and supporting functions such as infrastructure, skills, technology and access to quality information. Well-functioning markets encourage exchange and increased production at lower costs.