Private sector forecasts stable inflation on consumer demand

Private sector players expect Kenya’s inflation to only rise marginally in the next 12 months despite higher oil prices and higher demand on the back of increasing economic activity in most sectors.

A market perception survey by the Central Bank of Kenya (CBK) shows that banks and non-bank private sector firms both project the rate of inflation at an average of six percent in the next one year.

The inflation rate for March stood at 5.9 per cent, having gone up marginally from 5.8 percent in February largely on account of a rise in fuel inflation.

Microfinance banks (MFBs) are however bullish on the cost of living coming down in the next one year, telling CBK that they expect the average rate to come down to 5.4 per cent in the next one year.

“Respondents expect inflation in the next 12 months to be higher than in 2020, but to remain within the target band, as consumer demand picks up with the anticipated increase in economic activity in most sectors,” said CBK in the report on the survey, which was carried out in the first three weeks of March ahead of the monetary policy committee meeting.

Central Bank targets Kenya’s inflation at five percent, plus or minus 2.5 percentage points.

The current cost of living has been tied to increased fuel costs which has impacted cost of transportation and food. CBK data shows the fuel inflation was at 15.8 percent in March from 13.8 per cent in February.

In the short-term (April and May), the respondents to the CBK survey said that they see higher fuel prices as the most immediate concern in the cost of living index, which will likely however be tempered by lower food prices due to the onset of the long rains.