Inflation rise to six-month high signals increase in interest rate
A woman sells a variety of goods at an open air market in Nyeri. The cost of living in May rose the highest in five months lifted by high cost of food, cooking fuel and electricity charges. Photo/FILE
What you need to know:
Inflation stood at 7.30 per cent, up from 6.41 per cent in April — making it the third increase in a row.
KNBS attributes the jump to the sharp rise in electricity prices and double-digit increase in a number of food items like milk, sukuma wiki and onions.
Rising food and electricity prices pushed inflation to a six-month high in May, raising the prospect of interest rates increase in July.
Inflation stood at 7.30 per cent, up from 6.41 per cent in April — making it the third increase in a row.
The Kenya National Bureau of Statistics (KNBS) attributes the jump to the sharp rise in electricity prices and double-digit increase in a number of food items like milk, sukuma wiki and onions.
Analysts say the jump, which is the biggest since the introduction of VAT on a number of items in September, could see the Central Bank of Kenya increase rates to control the cost of living measure.
“The May inflation print most likely signals the start of a new interest rate cycle in Kenya, although we do not expect interest rates to rise anywhere near as much as they did in the last tightening cycle,” said Razia Khan, head of Africa research at Standard Chartered bank.
“Narrowing the spread with the Central Bank Rate, as well as nervousness around the softer shilling seen in recent days, should see the CBK resume a modest tightening cycle from July,” she added.
Kenya has left its key lending rate at 8.5 percent since May last year. The Central Bank of Kenya said in April that its policy stance was delivering stability.
But in the past month, the shilling has faced sustained pressure, forcing the central bank to intervene. Kenya’s shilling this month hit a 30-month low, due in part to market nerves following bombings in Nairobi and Mombasa, the east African economy’s main port city.
The repatriation of dividends by multinational firms also put pressure on the local currency.
But the shilling is now trading below the Sh88 per dollar level after the central bank signalled its intent to stem volatility.
Electricity prices increased the most after the power regulator raised the fuel surcharge to Sh7.22 from Sh5.19 on heavy use of diesel-powered generators to produce electricity.
The cost of 50 kilowatts of power stood at Sh625 in May compared to Sh513 in April.
At 7.30 per cent for the year to May, the inflation rate is just below the upper limit of the central bank’s target of 7.5 per cent. Official have set at 5 per cent with a margin of 2.5 per cent on either side.
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