Average prices of goods and services rose at the slowest pace in more than 17 years in October on lower food and energy costs, signalling a further drop in interest rates in coming months.
Inflation — a measure of increase in cost of goods and services year-on-year— fell to 2.7 percent from 3.6 percent in September, the Kenya National Bureau of Statistics (KNBS) said.
The rate of growth in average consumer prices is the softest since May 2007 when the cost of living measure stood at 1.96 percent.
Inflation has now remained within the Central Bank of Kenya’s target range of 2.5 percent and 7.5 percent since July 2023.
Average prices of food items increased a modest 4.3 percent compared with same month last year on improved harvests as a result of favourable weather and lower prices of farm inputs.
The KNBS report further shows that housing, water, gas and other fuels’ index rose a marginal 0.4 percent, while transport costs dropped 1.3 percent.
The slowdown in the growth of food, energy and transport prices has a huge impact on the overall inflation trend.
“The prices of sugar, maize flour-sifted and fortified maize flour decreased by 2.3, 1.8 and 1.7 percent, respectively, between September and October 2024,” Abdulkadir Awes, the KNBS director for population and social statistics wrote in a statement Thursday.Â
“The transport index declined by 0.3 percent between September and October 2024. This was mainly due to decrease in prices of petrol and diesel by 4.3 and 2.0 percent, respectively.”
The KNBS data shows sugar prices dropped the fastest at 31.2 percent to average of Sh150.33 per kilogramme, down from Sh218.66 a year ago due to improved production of cane.
Households and eateries paid Sh127.87 on average for a two-kilogramme packet of sifted maize flour, a 25.9 percent drop from Sh172.50 a year ago.
Motorists also witnessed 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.
Poor households that rely on kerosene for cooking paid Sh152.18 per litre, down 26.1 percent from Sh205. 79 a year earlier.
Homes and businesses consuming an average of 50 kilowatt hours of electricity saw their bills fall by 8.0 percent in October to an average of Sh1,278.43, while the bill for 200 kWh contracted 14.3 percent to Sh5,728.40.
Prices of beef on bone, sukuma wiki (kale) and carrots jumped by 13.7, 27.8 and 29.8 percent per kilogramme year-on-year, respectively, to Sh650.20, Sh79.37 and Sh11.05.
The fall in inflation towards the lower target of 2.5 percent will put pressure on CBK’s Monetary Policy Committee to cut base lending rates further when it meets in December.
The MPC cut the central bank rate by 75 basis points to 12 percent at its meeting earlier in October, signaling lenders to lower prices of loans.
A cut in the policy rate is expected to lower the cost of borrowing, as commercial lenders use it as a base on which to load their margins and risk profile of individuals when pricing loans.
“Looking ahead, we expect the CBK to continue lowering its policy rate. Our assessment is that risks are tilted towards further frontloaded cuts amid weak economic data, FX [foreign exchange] stability supported by improving external balances and a more favourable global rates environment,” Goldman Sachs analysts Andrew Matheny, Mambuna Njie and Vinayak Iyer wrote in an outlook report published by Barcelona-based FocusEconomics.
Prior to cutting the CBR in August, the MPC had raised the rate by 5.5 percentage points since the tightening begun in May 2022 through July 2024 to manage inflationary expectations by keeping cost of borrowing elevated.
The CBK used the tightening not only to exert demand-side price pressures by prompting households and businesses to postpone borrowing to fund expenditures which are not urgent or a priority, but also to attract inflows from foreign investors, thereby boosting foreign exchange inflows.
