How Kenya's new inflation metric will transform economic policy

The new approach, known as core inflation, adopts a narrower perspective. It gives a better view of the underlying pricing movements in the economy by doing away with these extremely volatile items. And with Central Bank of Kenya's inflation-targeting framework, which necessitates accurate data in order to make wise decisions on interest rates and other monetary policies, already in implementation, the shift to the new metric is important.

Erratic pricing impacts day-to-day living. Business owners break sweat to make simple decisions when costs fluctuate greatly, such as whether to recruit extra staff. Invest in new machinery? Should they change their prices? In a similar vein, families struggle with successful budgeting when they are unable to anticipate monthly price fluctuations. Core inflation aids in addressing these issues by offering a more reliable standard for economic planning.

Another significant benefit of the new method is transparency. Together, the KNBS and the CBK have created an easy-to-understand technique for determining core inflation. Businesses, investors, and the general public are more likely to accept economic data when they can observe the actual process used to create it. This trust is essential to economic progress because it allows investors to commit their capital and supports the implementation of sound economic policies by policymakers.

The advantages are not limited to Kenya. The country is an important player in regional economic integration, especially as a member of the East African Community (EAC). Kenya is in line with global best practices and facilitates economic policy coordination with its neighbours by implementing this standardised method of assessing inflation. Investors like markets with transparent and similar economic statistics across nations and as such, this standardisation is especially crucial for drawing investment to the area.

This change's timing is also important. Having trustworthy economic indicators is becoming more and more crucial as Kenya maintains its position as East Africa's top economy. Kenya's dedication to contemporary economic management techniques and sound governance is further evidenced by the new core inflation metric.

More than just a technical shift in Kenya's economic tracking, this shift to monitoring core inflation is significant. It's a calculated action that contributes to a more steady and predictable economic climate. Such advancements in economic monitoring and management will become more crucial as Kenya develops and integrates more with the global economy.

The writer is a development economist and a public policy specialist.