Inflation slows for the first time in 9 months amid CBK rate hikes

Patrick Njoroge

Central Bank of Kenya (CBK) Governor Patrick Njoroge. PHOTO | DIANA NGILA | NMG

Inflation has slowed down for the first time in nine months on the back of a drop in food and fuel prices and rate hikes to contain the cost of living measure.

Consumer prices fell to an annual 9.5 per cent in November from 9.6 per cent the month before as elevated inflation squeezed household budgets and demand for goods and services.

Annual inflation has been above the central bank’s 7.5 per cent ceiling since June and quickened at a faster pace in October at 9.6 per cent -- a level last seen in 2017 when a severe drought drove up food costs.

Soaring food prices, which together with runaway energy costs, have been the major driver of inflation showed glimmers of cooling off after slowing for the first time since February.

The slight inflation drop comes in a month that saw the Central Bank of Kenya (CBK) make another rate hike at its final meeting on November 23, in part to curb inflation.

The hike to 8.75 per cent from 8.25 per cent was the third in 2022 and brings cumulative increases to 175 basis points, the most in seven years.

Kenya’s inflation rate will remain above the government’s target range till early next year and then ease back towards it on the back of policy measures, central bank governor Patrick Njoroge said last week. 

Food accounts for nearly a third of the shopping basket for Kenyan families, meaning it has the biggest impact on the overall movement in prices.

Consumers on average spent 15.4 per cent more to buy foodstuffs than a year ago, marginally dropping from a 15.8 per cent jump in October, data from the Kenya National Bureau of Statistics (KNBS) showed.

The prices of cooking oil, tomatoes and fortified maize flour eased slightly month-on-month, but households continued to pay more for cabbages, Sukuma Wiki (collard greens) and beans.

“The transport index decreased slightly by 0.1 per cent between October 2022 and November 2022 due to a drop in prices of diesel and petrol by 0.6 per cent,” KNBS managing director Macdonald Obudho said in a statement. “However, prices of diesel and petrol… were still high compared to November 2021.”

The elevated inflation forced many households, especially in the low-income segment, to reduce their shopping basket in an environment where firms have frozen salaries as they recover from Covid-19 economic hardships.

The rise in the cost of essential commodities has forced workers to cut back spending on non-essential items such as beer and airtime, ultimately hurting firms like East Africa Breweries Limited (EABL) and Safaricom.

The cost of transportation, however, remained elevated, rising 11.7 per cent year-on-year from 11.6 per cent the month before after fuel prices fell by Sh1 in the current review period ending December 14.

The Energy and Petroleum Regulatory Authority (Epra) denied motorists using super petrol a price drop of about Sh10 per litre, cash which went into subsidising the cost of diesel which is consumed in key sectors such as transportation and farming.

President William Ruto, who took power in September and campaigned on a platform of easing the cost of living for the majority of poor households, has ruled out short-term fixes, dropping subsidies on maize flour and super petrol.

Dr Ruto has instead opted for cushioning farmers against the high cost of fertiliser, releasing 1.3 million 50-kilo bags of the key input for Sh3,500 per bag during the short rainfall season [October-December] compared with an average of Sh6,500 previously.

“The false comfort of a financial bandage must come to an end because we are risking short-term comfort in place of sustainability in the long-term,” the President said in October.

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