Kenya’s inflation hit a 58-month high in June on soaring food prices, breaching the government’s upper limit ceiling for the first time in nearly five years and further squeezing stagnant earnings of households.
The Kenya National Bureau of Statistics reported on Thursday inflation — a measure of annual changes in the cost of living— climbed to 7.9 percent from 7.1 percent in May.
This is the first time the year-on-year cost of living measure crossed the upper limit target of 7.5 percent since August 2017 when it climbed to 8.04 percent on a biting drought.
Back then, the Treasury allowed subsidies and waiver of import duties to smoothen purchase of key food items such as maize, rice and milk powder from abroad.
The jump in the cost of basic commodities will further narrow the shopping basket of households who have already been forced to cut on non-essential expenditure amid negative growth in real wages.
The rise inflation above the upper ceiling in June was in line with expectations from the Central Bank of Kenya and analysts.
CBK governor Patrick Njoroge had at the end of May warned of a “clear and present danger” of inflation punching above the upper limit largely on runaway cost of food items on the back of global supply constraints, weakening shilling and poor weather.
The KNBS data shows cooking oil surged at the highest rate of 51.7 percent to an average of Sh387.98 per litre in June from Sh255.83 a year ago.
It was followed by wheat flour where a two-kilogramme packet averaged Sh186.90 which was 44.2 percent jump over the prior year, while Irish potatoes rose 21.3 percent to Sh84.85 per kilogramme on average.
Poor households paid 30.5 percent more on a litre of kerosene to Sh128.86 compared with last year, diesel—largely used in farming and transportation— cost 29.8 percent to Sh140.91, while petrol was 25 percent higher to Sh159.94 per litre on average.
The KNBS data further indicates an 800-gramme laundry soap averaged Sh160.09, a 30.0 percent jump over Sh123.11 a year ago.
CBK’s inflation-targeting Monetary Policy Committee (MPC) reacted to runaway inflation by raising the benchmark central bank rate (CBR) — a signal for direction in interest rates — to 7.5 percent from 7.0 percent where it had been stuck since April 2020.
Dr Njoroge has, however, made it clear that the signal has little effect on reversing the inflationary pressures which are largely coming from soaring food and fuel prices which are beyond control of the CBK.
“We will take all measures necessary to deal with inflation. But it is clear that on supply-side-driven inflation [growth in cost of commodities], there’s virtually nothing that monetary policy can do. What monetary policy does is to deal with second-round effects,” the CBK boss said on May 31.
“Even then, we understand that this [rise in CBR] is not totally effective. That will need some time, say about three months, to be completely embedded in the economy.”
The Treasury requires the Central Bank of Kenya to write a formal explanation when inflation breaches the upper inflation limit, explaining reasons and measures to return it back to the 2.5-7.5 percent preferred range.
Companies have broadly blamed drop in consumer demand as a result of the cost-of-living crisis for the fall in month-on-month activity like output and employment in the first five months of the year, with February and March being the exception.