Inflation rate inches closer to Central Bank’s limit

The rate of changes in prices of goods and services moved closer to within the central bank’s upper limit last month driven by increased food prices and tuition fees.

Kenya National Bureau of Statistics (KNBS) data released on Friday showed overall inflation rose to 7.21 per cent in January from December’s 7.15 per cent.

The Central Bank of Kenya (CBK) pursues a target inflation rate of five per cent, with a 2.5 per cent allowance margin on either side.

An inflation rate of above 7.5 per cent is considered a hindrance to economic growth as it erodes consumers’ purchasing power.

KNBS data showed food prices rose by 10.14 per cent in January while recreation and culture rose by 12.12 per cent. Prices of alcoholic beverages, tobacco and narcotics rose by 7.71 per cent.

Partly due to higher food costs, the restaurant and hotels prices rose by 7.34 per cent.

In January, food prices rose by 1.00 per cent compared to last December following increases in some food prices outweighing falls in others.

“During the month of January 2014, food and non-alcoholic drinks’ index increased by 1.00 per cent. Increases in some food prices outweighed falls, resulting in an aggregate rise in the index,” said KNBS.

During the past four weeks, the index on housing and other utilities rose by 0.87 per cent mainly due to increase in rent, which tends to go up at the beginning of the year.

“Between December 2013 and January 2014, the Housing, Water, Electricity, Gas and Other Fuels’ Index increase by 0.87 per cent. This is mainly attributed to increase in the cost of house rents as well as rise in the prices of common cooking fuels,” said KNBS report.

A slight increase in forex adjustment charges caused an upsurge in the cost of electricity compared to the previous month.

The transport index was up due to higher prices of petrol, diesel and parking as well as higher public transport fares.

An analysis of the inflation data shows that Nairobi’s low income groups have been the worst hit by inflation in the past nine months.

KNBS data shows that last December, low-income households in Nairobi suffered an inflation level of 7.65 per cent against 5.62 per cent and 5.97 per cent per cent for upper and middle income households, respectively.

READ: Nairobi’s poor hit hardest by inflation in last nine months

The biggest increases in prices occurred when basic goods such as food were in short supply, as the Inflation Index assigns a weight of 36.04 per cent to food items.

The poor in Nairobi, who mostly live in slums, bear a disproportionate effect from rising prices because most of their income is spent on food.

A 2007 KNBS study showed that income of the bottom 20 per cent of the population was not enough to buy food, let alone other basics.