This emerges in a period that has seen real wages fall for a fourth consecutive year, a sign of falling standard as the squeeze from living costs hit homes.
The falling inflation will strengthen the hand of the Central Bank of Kenya (CBK) in the push to further lower the benchmark lending rate, offering relief to households and firms plagued with costly bank loans.
The Central Bank of Kenya (CBK) has cut the benchmark interest rate by the largest margin since the start of Covid-19 economic hardships in March 2020, signaling relief to borrowers plagued with costly loans and reversing the slowing demand for credit.
The key lending rate was cut in October by 75 basis points from 12.75 percent to 12 percent after a drop in inflation, following a 25 basis points fall in August.
This could trigger a fall in the cost of loans for households and firms who have struggled to service costly credit since CBK started raising rates in June 2022 amid global economic shocks that saw inflation rise to multi-year highs.
“We should not celebrate the fall in inflation. Kenyans have no money, because the interest rates are high—remember the shock hike in rates by CBK,” said Prof X.N Iraki, an economics don at the University of Nairobi.
“Taxes have (also) taken away more money, reducing the demand,” he added.
The inflation rate is now just 0.2 percentage points higher than the Central Bank of Kenya’s (CBK) preferred floor of 2.5 percent, which if breached would raise concerns about the risk of the country falling into deflation.
Deflation, or negative inflation, can lead to reduced investment in the economy, damaging job creation and economic growth, hence the call for the CBK to increase the supply of money by cutting its s rate.
“The optics might look good with the low inflation number, but the price movement could turn negative into deflation, which is not good in an economy that is looking to grow consumption to drive growth,” said Churchill Ogutu, an economist at IC Group (Mauritius).
Inflation, which measures the increase in cost of goods and services, has also been pulled down by sharp falls in prices of key items in the inflation basket such as flour, sugar, fuel and electricity which were coming off a high base in the corresponding month last year.
The Kenya National Bureau of Statistics (KNBS) inflation report for October shows that sugar prices dropped by 31 percent year-on-year to Sh150.33 per kilogramme, while the cost of a two-kilogramme packet of sifted maize flour fell by 26 percent to Sh127.87.
Motorists also enjoyed a 16.8 percent drop in the price of a litre of petrol at the pump to an average of Sh181.33, while diesel—consumed in key sectors such as transportation and agriculture—dropped 18.1 percent to Sh168.82 per litre.
Kerosene, which is used in lower income households, saw a drop of 26.1 per cent per litre to Sh152.18 in the period.
Electricity prices also came down by 14.3 percent to Sh5,728.40 for 200 kilowatt hours and eight percent for 50 kWh to Sh1,278.43 in the period.
On the other hand, prices of beef on bone, Sukuma wiki (kale) and carrots jumped by 13.7, 27.8 and 29.8 percent per kilogramme to Sh650.20, Sh79.37 and Sh11.05 respectively.
