Fall in fuel prices eases inflation to 18.3 per cent

The recent declines in prices of fuel have slowed the rate of inflation for the second consecutive month, easing pressure on Kenyan consumers and setting the stage for a drop in interest rates.

Data released by the Kenya National Bureau of Statistics (KNBS) on Tuesday showed the inflation rate fell to 18.31 per cent in January from 18.93 per cent in December, largely on account of lower fuel prices.

The consumer price index — which measures the changes in prices of consumer goods and services commonly used by households — increased marginally by 0.56 per cent in January.

The drop in the prices of petrol and diesel by 4.59 per cent and 1.7 per cent respectively reduced electricity bills and transportation costs, easing manufacturers’ costs of production.

“The cost of transport went down 1.47 per cent between December and January 2012 as a result of a fall in matatu, bus and taxi fares,” said the Bureau in a statement on Tuesday.

The cost of consuming 50 units of electricity dropped from Sh736 in December to Sh582 in January.

Analysts, however, said the marginal drop in inflation would prompt policy makers to keep the cost of borrowing at 18 per cent because there has not been a substantial turn-around in the cost of living.

“This will give further impetus for the MPC (Monetary Policy Committee) to keep rates at 18 per cent otherwise lowering rates would reverse the general trend of prices,” said Samora Kariuki, a research analyst at NIC Securities.

Out of the 12 broad commodity groups used to determine changes in the cost of living, transport and communications costs went down, with all the rest rising marginally.

The prices of sugar, maize flour, rice, green maize, and maize grain dropped by 13.1, 3.4, 2.3, 4.0 and 1.3 per cent respectively.
Manufacturers said that the cost of goods would come down if the ease in cost of production is sustained long enough to improve their profit margins.

“We are on the right track but energy and transport costs will have to come down to further reduce the cost of consumer goods,” said Vimal Shah, chairman of the Kenya Association of Manufacturers.

The Energy Regulatory Commission cut the price of super petrol by Sh7.11 to Sh111.95 a litre last month, diesel prices went down by Sh3.08 to Sh107.90 and the cost of kerosene declined by Sh3.63 to Sh87.11 a litre mid last month.

This saw the fuel cost charges for electricity consumed drop for the second month to Sh5.44 per kilowatt hour (kwh) from Sh8.02 in December. Forex charges dropped to Sh1.4 per kwh from Sh2.12 relieving consumers of high electricity bills.

Chairman of the Kenya Private Sector Alliance, Patrick Obath, said that the business will pick up if inflation drops by at least six percentage points.

“Pressure on businesses to pay higher wages will still persist in the coming months until fuel and food prices drops by significant margins,” said Mr Obath.