Inflation covering goods and services outside of food and fuel has climbed to a four-year high of 4.3 percent in January, reflecting the pass-through effect of the high global commodity, logistics and input prices in the local economy.
This non-food-non-fuel inflation, otherwise known as core inflation, tends to be less elastic compared to headline inflation which is largely influenced by the volatile change in food and fuel prices.
It went up by 20 basis points from 4.1 percent in December, in contrast to food inflation which fell from 13.8 percent to 12.8 percent during the month. Fuel inflation however rose by a percentage point to 13.8 percent.
A rise in core inflation is indicative of deeper price issues in the economy, and the rise in the primary products is filtering through to other segments such as transport, healthcare, recreation and education services.
Analysts said that while they expect further easing of headline inflation —which dropped marginally to nine percent last month from 9.1 percent in December— there are concerns that the prices of other goods and services will continue to be affected by global shocks that raise the prices of raw materials and supply chain costs.
“We foresee an ease in headline inflation due to effective fiscal and monetary policy interventions aimed at maximizing output while maintaining price stability. We however remain wary of second-round effects as domestic prices could be affected further by spill-over exogenous shocks from global market developments,” said analysts at Genghis Capital in a 2023 outlook note.
CBK is normally able to ride out oscillations in headline inflation due to the transitory nature of food and fuel price increases that tend to normalise before passing through to the other sectors of the economy.
Food, fuel and utilities account for 48 percent of the inflation basket, hence their oversized influence on the headline inflation rate.
These are expected to ease further going forward on lower crude prices and easing of drought conditions in the country.