KNBS to separate food and fuel in monthly inflation figures

A loader at Kongowea market in Mombasa carry's away a bag of potatoes from a truck in this picture taken on April 15, 2019.

Photo credit: File | Nation Media Group

The Kenya National Bureau of Statistics (KNBS) will from next month separate the price changes for fuel, food and transport from other consumer items in computing inflation figures in a move aimed at giving more clarity on the cost of living.

This is after the KNBS launched a report on core and non-core inflation, marking a departure from the current format in which the national statistician only publishes overall inflation.

Inflation is the increase in prices of items over a given time and is used to measure the cost of living in the economy. The items whose price changes are tracked are contained in a symbolic shopping basket technically known as the consumer price index (CPI).

Currently, the Central Bank of Kenya (CBK), whose primary role is to stabilise prices in the economy, is compelled to calculate its own core inflation, or non-food non-fuel (NFNF) inflation, from the data given by KNBS.

The CBK published a core inflation rate of 3.2 percent in December 2024, which conflicted with KNBS’ 2.0 percent. The overall cost of living in that month was three percent.

Using monetary tools like the Central Bank Rate, which is its benchmark lending rate to commercial banks, the CBK applies the core inflation to regulate prices in the economy by either increasing or reducing the supply of money.

“The major user of CPI (Consumer Price Index) data is CBK whose job is to ensure price stability,” said KNBS Director-General Macdonald G. Obudho.

“Core inflation gives you room to have a long-term plan.”

This is not the first time that changes have been made to the CPI. In 2009, the KNBS abandoned the arithmetic mean computation method and adopted the geometric mean computation which sought to remove the impact of volatile outliers on the food basket. This sharply reduced food inflation.

The current changes are informed by the East African Community (EAC) convergence criteria which expect the eight-member countries to publish core and non-core inflation.

While the EAC has 279 items under the core inflation, Kenya removed from this basket noting that these items are volatile in the country. These items are matatu fares, omena (sardines), domestic flight and maize flour.

The separation of core inflation from non-core will give clarity to the CBK whose primary role is to stabilise prices in the economy.

“Traditionally, a single inflation measure has served as a general gauge for price changes, but this approach can obscure critical details,” said the Principal Secretary for State Department for Economic Planning, John Muhati, during an event that was also attended by the CBK Governor Dr Kamau Thugge.

“By distinguishing between core and non-core inflation, we can better capture the subtleties of price behavior.”

Core inflation does not include prices of food, fuel and some aspects of transport that tend to be volatile.

Although KNBS has been generating core inflation, which is critical for CBK’s function of regulating prices, the financial regulator has been using the numbers published by the national statistician to produce its own core inflation.

For the non-food non-fuel inflation, the CBK has been using 200 items, with the national statistician having 275 items.

“This will track overall inflation better…This gives clarity to CBK and other stakeholders on what constitutes core and non-core inflation,” said Dr Thugge, noting that changes are particularly important given the CBK has moved into an inflation-targeting regime.

Items in non-core inflation such as food and fuel are prone to external shocks such as weather changes, shocks in the global economy, and supply-side factors. For these factors, the CBK has little influence.

The KNBS uses prices of 331 items in the CPI, or the cost-of-living index, to calculate inflation.

When inflation went up due to higher prices of food and fuel, the CBK was forced to respond with higher CBR rates, despite the food and fuel inflation being the most pronounced.

Dr Thugge noted that they had to respond by tightening monetary supply because they noticed that NFNF inflation was also trending towards the upper limit of five percent.

“But there was also a need to address the second-round effects, especially expectations of higher fuel prices which would have an impact on the shilling,” said Thugge.

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