Inflation falls to 10-month low of 7.9 percent

Groceries trader in Nyeri town. FILE PHOTO | NMG

Kenya’s cost of living measure eased in April to a 10-month low on moderation in growth in food prices following the onset of long rains, which has boosted the production of select vegetables.

Inflation — a measure of the cost of living over the last 12 months— dropped to 7.9 percent from 9.2 percent in March, the Kenya National Bureau of Statistics (KNBS) reported Friday.

Households budgets on food grew at a slower rate of 10.1 percent year-on-year in April compared with 13.4 prevent the month before, KNBS data shows.

The growth in inflation is the slowest since June 2022, when it stood at the same level.

Families, however, battled increased costs of electricity, housing, cooking gas and other fuels, priced 9.6 percent higher on average than a year ago compared with March’s rise of 7.5 percent.

“The housing, water, electricity, gas and other fuels’ index increased by 2.7 percent between March 2023 and April 2023. This was mainly due to increase in prices of electricity, which increased 18.7 percent for 50 kilowatts and 13.7 percent for 200 kilowatts,” KNBS said.

Food usually has the biggest impact on the overall movement in prices because it accounts for nearly a third of the shopping basket for Kenyan families.

The growth in average food prices was the slowest since March 2022 at 9.9 percent, the data shows.

“The prices of (Irish) potatoes, beans and mangoes increased by 7.2, 5.0 and 3.5 percent, respectively, between March and April 2023.

“During the same period, prices of spinach, sukuma wiki (kale) and tomatoes declined by 12.6, 11.8 and 4.7 percent, respectively.”

The rise in average cost of transportation in April also eased year-year to 9.8 percent in April from 12.6 percent the month before, while it edged 0.2 percent month-on-month.

President William Ruto, who took power in September partly on a campaign platform of easing the cost of living for the majority poor households, has ruled out short-term fixes, dropping subsidies on unga and super petrol.

The Ruto administration has, however, denied consumers of super petrol a price drop since October, cash which it has since used to subsidise the purchase of diesel while maintaining the cushion on kerosene.

The inflation, however, remained above the upper target of 7.5 percent.

Read: Economists see inflation staying above State target

Inflation tracking

The current elevated inflationary pressures amid ongoing irregular, below average rainfall during the March-April-May main crop planting season has pushed the Ruto administration to sanction duty-free importation of staple maize, rice, cooking oil, sugar, wheat and beans.

“In 2023, inflation is expected to average at a similar pace to last year, propped up by a weaker shilling. Currency volatility and swings in food prices in response to changing weather patterns remain key risks,” analysts at Barcelona-based FocusEconomics wrote in a consensus report late Tuesday.

Analysts at British-owned HSBC, Europe’s largest bank by asset value, have the highest forecast on Kenya’s inflation for 2023 at 9.1 percent, followed by Standard Chartered of London (9.0 percent), Fitch Ratings (8.0 percent) and market intelligence and advisory firm, FrontierView (8.0 percent).

However, Moody’s Analytics of the US (6.5 percent), Switzerland-based Julius Baer (6.7 percent), Economist Intelligence Unit (6.9 percent), Nigeria’s Vetiva (7.0 percent) and Euromonitor International (7.0 percent) and Goldman Sachs (7.3 percent), see inflation falling below the upper target.

Others, as tracked by FocusEconomics, are JPMorgan (7.5 percent), Fitch Solutions (7.5 percent), Capital Economics (7.7 percent), Oxford Economics (7.8 percent) and brokerage house Citigroup Global Markets (7.8 percent).

A depreciating shilling compounds the persistent cost of living crisis in a net import economy, which raises prices of goods as traders and factories pass on the additional overheads to the consumer.

The resultant higher prices erode consumer purchasing power, reducing demand for goods and hurting job creation.

The shilling has, for example, lost about 10 percent of value against the globally-bullish US dollar since the beginning of the year, piling pressure on inflation.

The CBK’s monetary policy committee in late March raised the benchmark lending rate to 9.50 percent from 8.75 percent to rein in inflation.

Read: Average lending rate crosses 13pc for first time since 2018

Increasing the key lending rate makes borrowing more expensive, and this is expected to reduce or postpone expenditure on luxurious goods like cars, thus helping rein in elevated inflationary pressures.

“The interest-rate rise to 9.50 percent means the real rate is now positive for the first time since May 2022, although the shilling will remain vulnerable given ongoing foreign-exchange shortages,” Economist Intelligence Unit (EIU) analysts were quoted saying in the report. “We expect monetary tightening and pending new foreign-exchange inflows to help to ease price growth and support the shilling in the second quarter of 2023.”

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