Kenya’s Inflation Reaches Five-Month Peak Due to Rising Food Prices

Kenya’s annual inflation rose to a five-month high at 3.5% in February, spurred by increased food prices. Core inflation remained unchanged at 2%, indicating weak demand. Despite the potential risks posed by newly reinstated taxes, the central bank is poised to consider further interest rate cuts to stimulate growth.

In February, Kenya’s annual inflation rate reached a five-month peak, driven primarily by rising food prices. The Kenya National Bureau of Statistics reported a rise in consumer prices to 3.5% from 3.3% in January, aligning with expectations set by the central bank. Meanwhile, core inflation, which omits volatile food and energy prices, remained static at 2%, suggesting low demand levels in the economy.

Food and non-alcoholic drink prices, comprising a significant portion of the inflation measure, increased by 6.4% in February, up from 6.1% in the previous month. Transport expenses also maintained a rise of 0.7% as gasoline prices steadied following a government review. A decline in global fuel prices could positively impact the Kenyan economy, easing energy costs.

Housing and energy-related expenses decreased by 0.8% in February, a notable improvement from a reduction of 1.6% the prior month. Nonetheless, the reinstatement of various tax measures in December, previously lifted due to civil unrest, poses potential risks for the inflation outlook. An increase in the import levy related to the railway development fund may lead to higher manufacturing and agricultural costs, according to insights from KPMG.

Despite inflation remaining under the central bank’s target of 5% since June, prospects suggest it may hold steady in upcoming months. The stable exchange rate could prompt the Monetary Policy Committee to consider further interest rate reductions in April, following previous adjustments totaling a 2.25 percentage point decrease since August, bringing the benchmark rate to 10.75%.

In conclusion, Kenya’s inflation rate has reached a five-month high, primarily due to increased food prices, with a total consumer price increase to 3.5% in February. While core inflation indicates subdued demand, the reinstatement of tax measures may challenge the inflation outlook. The central bank could further lower interest rates due to stable inflation and exchange rates, fostering economic growth.

Original Source: financialpost.com