Kenya’s inflation reached a five-month high of 3.5% in February, driven mainly by rising food prices. Core inflation remained steady at 2%, suggesting subdued economic demand. The central bank may consider easing interest rates due to sustained low inflation, although reinstated tax measures could pose risks to future inflation levels.
Kenya’s annual inflation rate reached a five-month high of 3.5% in February, rising from 3.3% in January, as reported by the Kenya National Bureau of Statistics. This increase is primarily attributed to the continuous rise in food prices, which have become a pressing issue. Moreover, core inflation, which excludes volatile food and energy prices, remained stable at 2%, suggesting a subdued demand within the economy.
Despite the recent spike, inflation has consistently remained below the central bank’s desired midpoint of 5% since June. Anticipating a sustained low inflation environment, the Monetary Policy Committee (MPC) may consider reducing interest rates in their upcoming April meeting. The MPC has already decreased the benchmark rate by 2.25 percentage points since August to stimulate economic expansion and enhance private credit availability.
In terms of specific categories, food and non-alcoholic beverage prices, which constitute a significant portion of the inflation basket, increased by 6.4% in February compared to 6.1% in January. Transport costs held steady at an increase of 0.7%, largely due to the absence of changes in gasoline prices during the mid-month review. Furthermore, global fuel price reductions present a favorable outlook for the country as it imports refined petroleum products, likely leading to lower energy prices.
Conversely, housing and utility prices showed a decline of 0.8% in February, recovering from a -1.6% change the previous month. However, the reinstatement of certain tax measures in December poses potential risks to the inflation forecast. Notably, the railway development fund import levy was raised to 2% from 1.5%, and alterations to the tax status of agricultural additives could increase costs for manufacturers and farmers, as noted in a KPMG research report.
In summary, Kenya’s inflation rate has surged to a five-month high predominantly due to rising food prices. Despite the increase, inflation remains below the central bank’s target, allowing for potential interest rate cuts. Nevertheless, ongoing tax measures may complicate the inflation outlook going forward.
Original Source: financialpost.com
