Inflation rises despite Uhuru’s assurance

October 28, 2011

, NAIROBI, Kenya, Oct 28 – Month-on-month inflation rose by 1.57 percent in October to stand at 18.9 percent defying assurances by Finance Minister Uhuru Kenyatta that it would edge lower.

According to data from the Kenya National Bureau of Statistics, inflation was largely driven by a 6.38 percent and a 2.2 percent rise in the communication and the furnishing and household equipment indices respectively.

The food and fuel indices also went up on account of an increase in certain food products, the cost of electricity and cooking fuel.

For instance, a shortage of cooking gas has driven up its cost with a 13 kilogram cylinder retailing at an average of Sh3,800 against a price of Sh2,600 a few months ago.

“As a result of higher fuel and foreign exchange adjustment charges, the cost of consuming 50 units of electricity for example varied from Sh695.5 in September to Sh793.5 in October,” said the Bureau in a statement.

On Wednesday, Kenyatta had forecasted that the surge in the Consumer Price Index would start to gradually decline as the effects of the short rains relieve pressure on food prices and the shilling started to stabilise.

Evidently however, this was not to be.

However, the rate at which the food index has gone up had declined.

The index went up by 0.7 percent during the month despite a rise in sugar, beef, wheat flour and milk prices with analysts projecting that it could be a pointer that there are some foodstuff that have already hit the market following the onset of the short rains

Despite this assuring development however, the acceleration marked the 12th month that inflation was creeping up and also the highest rise that has been recorded since April 2011.

Standard Chartered Bank Head of Regional Research for Africa Razia Khan observed that this trend hints at a worrying resurgence of inflationary pressure which she said could be explained by the ‘exaggerated’ forex market volatility.

And while it also means that the current measures taken by the government to contain inflation have not effectively worked, she did opine that this situation should be addressed by further tightening the monetary policy.

Khan said a two percent hike in the base rate to 13 percent when the Monetary Policy Committee meets next week would be ideal.

“We believe the worsening inflation profile calls for more decisive action from the CBK (Central Bank of Kenya). Our call is for a 200 bps rate hike, taking the Central Bank rate to 13 percent,” she emphasised.

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