The Central Bank of Kenya (CBK) has lowered its target for inflation in the coming months to below the 5 percent midpoint, mirroring its view of less pressure on consumer prices than previously expected.
The lender, which had seen the inflation rate breaching the midpoint by March next year, now expects changes in consumer prices to stick below the threshold through August 2026.
The lower expectations on consumer prices are despite September’s inflation rate rising to a 15-month high of 4.6 percent, driven mostly by higher food and fuel prices. CBK expects inflation to only peak at 4.9 percent in November this year before easing to 4.3 percent by June 2026.
Previously, inflation was expected to peak at 5.2 percent in March 2026 before falling in subsequent months.
The inflation forecast will give CBK more room to cut its benchmark interest rate further if deemed crucial to stimulating credit growth to the private sector.
“The inflation outlook has somewhat improved...and we do see that inflation remains below the 5 percent midpoint over a range throughout the near-term projection,” said CBK Governor Kamau Thugge.
“Our previous projection had indicated that inflation would exceed the five percent midpoint, but new prospects are much improved," he added.
A low inflation rate driven largely by a stable inflation rate helped CBK to make its eighth straight cut to the benchmark rate from 9.5 percent to 9.25 percent earlier this week, as it seeks to anchor the rebound of private sector credit.
The marginal uptick in September’s inflation rate was mainly driven by higher food and fuel prices (non-core inflation) as the index rose from 9.2 percent to 9.6 percent.
The contribution of food to non-core inflation rose from 8.1 to 8.2 percentage points, while energy prices contributed 0.4 percentage points.
Higher food prices mostly covered select vegetable items, including tomatoes, carrots, onions and cabbage. Non-food, non-fuel inflation or core inflation fell from three percent to 2.9 percent in the same month, from lower prices of processed foods, including maize flour.
Findings from September’s Agriculture Sector Survey indicated that respondents saw inflation keeping within the 5 percent midpoint on the onset of the harvest season for key crops, especially maize.
Consumer prices were seen to be further anchored on stable fuel prices and exchange rate stability.
The Markets Survey conducted in the same month by CBK also showed that respondents expected inflation to stick to the target range from factors including stable international oil prices and the exchange rate.
The majority of respondents, however, expected higher prices for some food items, particularly vegetables, a factor that could exert moderate pressure on inflation in the near term due to seasonal factors.
