Kenya now sees stable inflation rate

Kenya expects a stable inflation rate for the rest of this year thanks to good food harvests, the head of the statistics office said on Wednesday.

The Kenya National Bureau of Statistics (KNBS) said year-on-year inflation was 5.2 percent in February, based on a new consumer goods basket.

“It should be within that range or it might drop a bit low with the good rains. Food is still a big component, although within the new basket it moved down to 36 percent,” Anthony Kilele, KNBS’ director general told Reuters, when asked about outlook for the rest of the year.

He said the weight of food had in effect been slashed to 40 percent from half of the basket late last year when the bureau changed the formula of calculation.

A prolonged drought in many parts of east Africa’s largest economy pushed food prices higher for much of the last two years, causing volatility in the rate as it swung from single digits in late 2007 to a high of 31.5 percent in mid-2008.

Kilele said the new basket was based on the Kenya Household Budget survey of 2005/06, replacing another survey carried out in 1993/94.

Another survey will be carried out next year in line with international practice, Kilele said, adding KNBS will calculate inflation for the past months based on the new basket, to give the market a comparable trend.

“We are going to try and work backwards. That is a very tedious exercise... that takes time,” he said.

Terry Ryan, a member of the country’s Monetary Policy Committee said February’s inflation figure indicated the rate was not volatile.

Old system

“If you are in a band of 6.5 to 3.5, somewhere in there, you are inside the type of target that one is looking at,” Ryan told Reuters. He agreed with Kilele’s assessment that outlook for inflation was benign.

“We are not looking at liquidity constraints. If I look at the interest rates, they are not signalling a sort of tightening of the system, so inflation should stay inside where it is,” Ryan said.

January’s headline inflation rate was 4.7 per cent using the old weightings for the goods basket.

KNBS said it had not yet calculated previous months using the new basket, nor what February inflation would have been under the old system.

For February, it expanded the basket of goods used to calculate the consumer price index to 12 categories from 10 to reflect changes in spending habits.