New inflation calculation tool likely to boost investment yields

However, labour economists argue that even though the new inflation figures still show that value of current wages has been eroded, it was not enough reason to warrant a review.

“The ability of a company to pay has to be considered. Productivity is also important,” said Mr Jacob Omolo, a researcher at Institute of Policy Analysis and Research (IPAR).

Mr Andre DeSimone of Kestrel Capital, said that foreign investors understood the change in calculation as it now compares with that used in developed European countries. It is now easier to compare country by country investment risks.

“Foreign investors understand the change in the inflation calculation since it now compares with calculations used in developed EU states. However, they will now watch to assess if it might result in more volatile monthly figures,” he said.

He added that the new inflation numbers made returns from bond investment more attractive than was the case before.

Food stores

Analysts at Kestrel Capital are convinced that inflation will only go down as the country’s food stores begin to fill.

“Inflation is expected to ease in the next few months with the onset of the short rains expected in March, ” said Kestrel in its latest report.

For example, according to Nairobi Stock Exchange (NSE) records of March 5, the only bond yielding less than the inflation rate of 5.2 per cent is the seven-year bond which matured on Monday and had an implied yield to maturity of 4.0 per cent last week, indicating that the holder of the bond was earning 0.4 per cent per day for the remaining days amounting to an annualised yield of 146 per cent.

Citibank analyst David Cowan says the new method should in the medium to long term reduce the volatility of the inflation rate.

“In our view, these changes do not really reflect political manipulation of the statistics, but are normal technical changes to their calculation,” said Mr Cowan.