Low food but high fuel prices keep Kenya inflation high
KENYA’S year-on-year inflation rate which has fallen for four consecutive months could ease further in April on a drop in food prices, but a sharp fuel price increase could prevent this, a Reuters survey showed.
A drop in inflation may give more justification for the central bank to start easing its benchmark lending rate at its next meeting next Thursday, after the expected release if the inflation statistics on Monday.
The consensus forecast in a survey of seven analysts was for inflation in east Africa’s largest economy to slow down to 15.00 percent from 15.61 percent in March, the lowest since July 2011.
Inflation hit nearly 20 percent in November, prompting the central bank to raise its benchmark lending rate by a surprise 150 basis points to 18 percent.
The central bank was slammed for waiting too long to respond to surging prices and the Kenyan shilling fell through a series of record lows against the dollar in the country which plans to hold its elections in March next year, when election spending is expected to put pressure on prices.
Kenya’s energy regulator raised the prices of diesel, petrol and kerosene during its mid-monthly review, citing higher international crude oil costs.
“There may be a slowdown in inflation. However the fuel (price) increases will negate any gains,” Duncan Kinuthia, head of trading at Commercial Bank of Africa, said. He said the rains could see food inflation ease.
“Power bills may also remain within acceptable ranges as reliance on thermal power may reduce and more emphasis on hydro generation as well as geothermal.” The food inflation rate fell to 20.31 percent in March from 22.05 percent a month earlier, while the component with fuel prices inched lower to 13.02 percent in March from 13.84 percent a month earlier.
Kenya’s central bank held its key interest rate on hold for the fourth month in a row in April, saying inflation had still not declined as required.
The bank said inflation was still above the government’s short-term target of 9 percent and that private sector credit growth remained too high.
A stronger shilling and aggressive monetary policy tightening by the central bank slowed inflation after it rose for 13 straight months to a peak of 19.72 percent in November.
The committee was also cautious about inflationary pressure on food and energy prices due to a delay in the rainy season, that usually begins at the end of March.
Much of Kenya’s electricity is generated from hydropower dams.
Policymakers raised rates by 11 percentage points to 18 percent in the final quarter of last year, to fight inflation that peaked at nearly 20 percent in November, and to prop up the shilling after it fell through a series of record lows to an all-time record of 107 per dollar.
Of the six analysts who forecast a drop in inflation one said he expected it would fall sharply to 12.2 percent.
The analyst who predicted an increase, said it would rise to 16.2 percent.
“Inflation will be affected by fuel price increase and the increase in milk prices. It will marginally be supported by expected drop of food prices in future aided by the current rainfall,” said Tony Mulisa, treasurer for Kenya at Barclays Bank of Kenya.