Inflation not worrying, Treasury says

March 2, 2011
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, NAIROBI, Kenya, Mar 2 – The Ministry of Finance says it is comfortable with the current inflation rate in the country despite a rise over the past four months.

The Treasury’s sentiments come amid a spike in February inflation levels to 6.54 percent, which is above the government’s target of five percent.

Ministry of Finance Permanent Secretary Joseph Kinyua said on Wednesday that the current pressure comes from a sharp increase in food prices while other key economic sectors were still showing signs of stability.

“If you net out the food items, you find that the inflation is within the range that is expected in terms of the good monetary policy that we are perusing as a government,” Mr Kinyua said.

The Food and Non-Alcoholic drinks’ index went up by 1.74 percent between the months of January and February. This was attributed to cost increases recorded in respect of a number of food products such as maize flour, wheat flour, sukuma wiki, spinach, and maize grain.

Prices of basic necessities like cooking oil, flour, and kerosene have increased by up to 50 percent in less than a year.  This has put immense pressure on many households that have been forced to re-work their budgets to fit into their income.

The PS however said it would be important for the Treasury to keep a tab on the overall cost of living to cushion people from high prices. He said that should food continue to put pressure on the inflation levels, the government would look at offering duty waivers for imported foods to ease pressure on consumers.

“If it is a question of shortage of commodities, the government can take a proactive intervention by removing duty for goods and food items coming from other parts of the world to lessen the cost to the consumer,” he said.

He however clarified that it was still early, adding that the Treasury would monitor the situation before making a concrete decision.

Also putting pressure on the cost of living is the high cost of energy, which is expected to come under intense pressure in the coming months as revolution spreads through the Arab world piling pressure on global fuel prices.

Fuel prices have soared above the Sh100 a litre in most towns trailing the rise in crude prices above $110 a barrel.

During the month of February, the housing, water, electricity, gas and other fuels index went up by 0.8 percent mainly because of increases in the prices for electricity and housing costs.

According to the Kenya National Bureau of Statistics, the main contributor to high cost of electricity was the amount charged to offset fuel adjustments, which increased from Sh3.82 per kilowatt-hour in January to Sh4.67 per kilowatt-hour in February.

The cost of electricity is also expected to continue rising as the country taps deeper into expensive thermal power to meet its needs with the drop in supply from the cheaper hydropower.

The energy index accounts for 18.3 percent of the CPI and affects the prices of other commodities as manufacturers and public transporters pass through additional energy expenses to their clients.

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