Markets & Finance

Power, food cost push inflation to 25-month high

food

A vegetable vendor waits for customers. Rising food prices pushed up overall inflation for the month of August to 8.36 per cent. PHOTO | FILE | NATION MEDIA GROUP

Rising food, electricity and transport prices helped push up the rate of inflation in August to its highest level since June 2012, breaching Treasury targets for the first time since last October.

Data from the Kenya National Bureau of Statistics (KNBS) shows that inflation increased to 8.36 per cent in August from 7.67 per cent in July, raising the likelihood of interest hikes in coming months.

Kenyan authorities prefer inflation at between 3.5 and 7.5 per cent, meaning the Central Bank of Kenya’s next rate-setting meeting is likely to worry about the inflation trend, which has increased for the sixth month in a row.

“The aggregate rises in rate of food inflation come as a result of observed increases in the prices of several food commodities,” KNBS said in a statement, adding that Kenyans were also bearing the burden of rising rent, electricity and transport costs.

On a monthly basis, inflation rose 0.94 per cent from July, a rise analysts reckon was unusual for a month where prices tend to be less volatile.

“Today’s CPI print will serve as a timely reminder that the room for any interest rate easing — even much more of a downward drift in short-term market rates — is limited,” said Razia Khan, head of research for Africa at the Standard Chartered Bank.

The Central Bank’s Monetary Policy Committee is due to meet on Wednesday to set rates and decide how to tame inflation. But the inflation pressure is linked to factors beyond the control of the Central Bank, such as food, expensive electricity linked to increased use of costly thermal power as well as rising petrol and transport prices.

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KNBS says bus fare for a journey of 250km is now averaging Sh397, up from Sh348 in August last year. The 13kg cooking gas is up to Sh3,109 from Sh2,575 while 200 units of electricity are Sh3,913 from Sh3,052 in the period.

The government has promised a 20 per cent drop in electricity prices at the end of this month helped by the injection of 140 megawatts of cheaper geothermal power to the national grid.

Kenya’s year-on-year inflation rose to 8.29 per cent in September 2013 — a 15-month high — after prices of nearly all items went up on revision of the VAT law that taxed most goods.