Kenya’s annual inflation reached a five-month high in February, driven by rising food prices. Consumer prices increased to 3.5%, aligning with central bank forecasts, while core inflation held steady at 2%. The central bank might cut interest rates further based on stable economic indicators, though recent tax changes pose potential inflation risks.
In February, Kenya’s annual inflation rate rose to a five-month high, primarily driven by increasing food prices. According to the Kenya National Bureau of Statistics, consumer prices climbed to 3.5% from 3.3% in January. Core inflation remained unchanged at 2%, indicating subdued consumer demand. The results align with the central bank’s expectations.
The inflation rate has been below the central bank’s target midpoint of 5% since June, a trend anticipated to continue. This stability, along with a steady exchange rate, may prompt the Monetary Policy Committee (MPC) to further cut interest rates in April, following previous reductions totaling 2.25 percentage points since August, bringing the rate to 10.75% in an effort to stimulate economic growth.
Notable increases occurred in food and non-alcoholic drink prices, which account for a significant portion of the inflation basket, rising to 6.4% from 6.1% the previous month. Transport costs remained stable, rising only 0.7% after gasoline prices were not adjusted. However, a decline in global fuel prices may positively impact energy costs in Kenya, given its reliance on imported refined petroleum products.
Housing and utility prices experienced a slight decrease of 0.8% in February. Despite occasional declines, the recent reinstatement of tax measures and import levies could threaten the inflation rate, as a new railway development fund levy was raised and changes to agricultural tax statuses could drive up costs for producers, according to a KPMG analysis.
In summary, Kenya’s inflation has reached a five-month peak, primarily influenced by food price increases. While core inflation remains stable, the stable exchange rate and current inflation levels may encourage further interest rate cuts by the central bank. However, the impact of recent tax measures presents risks to the inflation outlook going forward.
Original Source: financialpost.com
