Kenya Inflation Rate Rises to Five-Month High Due to Food Prices

In February, Kenya’s annual inflation hit a five-month high driven by increased food prices, rising to 3.5% from 3.3%. Despite this rise, inflation has remained below the central bank’s 5% target, prompting potential interest rate cuts. The increase in food prices was matched with stable transport costs, while housing and utility costs saw a decrease, although new tax measures could affect future inflation.

Kenya’s annual inflation rate rose to a five-month peak in February due to escalating food prices. According to the Kenya National Bureau of Statistics, consumer prices increased by 3.5%, up from 3.3% the prior month, aligning with the expectations of the central bank. Core inflation remained steady at 2%, reflecting subdued demand in the economy.

Despite the inflation increase, the rate has stayed below the central bank’s target midpoint of 5% since June, with forecasts suggesting this trend will persist shortly. This, alongside a stable exchange rate, may encourage the Monetary Policy Committee (MPC) to consider further interest rate cuts in April. The benchmark interest rate has been reduced by 2.25 percentage points to 10.75% since August to foster economic growth.

In February, food and non-alcoholic beverage prices, which constitute a third of the inflation basket, increased by 6.4%, compared to 6.1% in January. Transport costs also rose by 0.7%, maintaining the same level as the previous month, as the government refrained from altering gasoline prices. A decline in global fuel prices is favorable for Kenya, which relies on imported refined petroleum products and may alleviate energy expenses.

Housing, water, and utility costs decreased by 0.8% in February, a contrast to the 1.6% decline observed in the previous month. However, the reintroduction of various tax measures in December poses potential risks to the inflation outlook. For instance, the import levy known as the railway development fund was raised to 2% from 1.5%, coupled with alterations to the tax status of agricultural additives, which may increase costs for both manufacturers and farmers, as highlighted in a KPMG research note.

In summary, Kenya’s inflation rate has reached a five-month high, primarily driven by rising food prices. While the overall inflation remains within the central bank’s preferred range, the MPC might opt to lower interest rates further to stimulate the economy. However, reinstated tax measures could pose challenges to maintaining favorable inflation levels in the future.

Original Source: financialpost.com