Economy
June inflation defies food, fares rise to fall to 7.9pc
Friday June 30 2023
Cooking gas on sale. FILE PHOTO | POOL
Kenya’s inflation in June remained largely flat on slight moderation in the cost of energy, the statistics agency announced on Friday, amid fears of a rise in July when new taxation measures take effect.
Inflation — a measure of the cost of living over the last 12 months— eased marginally to 7.9 percent from 8.0 percent in the prior month, the Kenya National Bureau of Statistics (KNBS) reported.
Read: May inflation climbs to 8pc on rising food, energy costs
The flat-lining of the inflation rate was largely helped by lower petroleum prices with diesel, super petrol and cooking gas easing slightly.
“Whereas the prices of diesel and petrol decreased by 0.7 percent and 0.4 percent, respectively, between May 2023 and June 2023, the transport index went up slightly by 0.2 percent,” the KNBS said in a statement. “This was mainly due to the increase in prices of fares for city buses and flights during the period.”
Overall, transport costs increased 9.4 percent in June compared with a year earlier, putting pressure on the prices of other consumer goods.
The slight easing in inflation came in a month food prices defied earlier projections from the Central Bank of Kenya, which had forecast a drop on the back of long rainfall amid falling freight charges for imports.
The average prices of food rose at a faster pace of 10.3 percent year-on-year compared with 10.2 percent in May, squeezing household budgets at a time growth in salaries has remained below the inflation rate for three years in a row.
The stubbornly high cost of food and impending further price growth on account of doubling the value-added tax on fuel prompted the new CBK governor Kamau Thugge to increase benchmark interest rates by a percentage to 10.5 percent at a surprise monetary policy meeting on Monday.
“The internal projections were that the near-term inflation would continue to decline…given the information that they had, it made sense not to further tighten monetary policy,” Dr Thugge told a media briefing on Tuesday.
“It was critical that we take action to address this change in inflationary expectations and hopefully anchor those expectations so that people don’t make decisions on the basis of expecting inflation to fall.”
Read: Thugge strikes, sets tone with highest loan rate in seven years
Increasing the key lending rate makes borrowing more expensive as banks use the rate as a base on which they load their margins when pricing loans.
The growth in benchmark central bank rate, technically known as [monetary] policy tightening, is expected to prompt consumers to cut or postpone expenditure on luxurious goods like cars, thus helping rein in elevated inflationary pressures from the demand side.
Read: Middle class drop premium brands as inflation stings
The KNBS data shows sugar prices jumped the highest in June, costing households Sh204.76 per kilogramme on average, which is 58.1 percent more than Sh129.55 a year ago.
Electricity bills have increased at the second fastest pace in the past year after households and businesses spent Sh6,707.02 on average to buy 200 kilowatts-hour (units) in June, 53.4 percent more than Sh4,373.12 in the prior year.
This is a result of an upward review in electricity prices last April by the Ruto regime, the first since 2018, and retiring of a subsidy which had been introduced by the predecessor administration.
Other items whose prices rose sharply include loose maize, which cost 30.7 percent more to Sh86.13 per two-kilogramme tin, carrots by 30.2 percent to Sh121.29 per kilogramme and kerosene by 25.9 percent to Sh162.19 per litre.
