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Kenya’s month-on-month inflation rate slows

NAIROBI, Kenya, Mar 30 – Kenya’s month-on-month inflation rate slowed down by 1.08 percent to stand at 15.61 percent in March 2012 according to the latest data from the Kenya National Bureau of Statistics (KNBS).

Despite the drop however, all other indicators except transport increased marginally pushing up the Consumer Price Indices (CPI) by 1.34 percent to 132.51. These include food and non-alcoholic drinks; housing, water, electricity, gas and other fuels; education, restaurants and hotels.

“The food and non-alcoholic drinks index increased by 2.44 percent between February 2012 and March 2012 mainly due to a rise in the prices of milk, potatoes, sukuma wiki (kales), tomatoes and onions,” KNBS said.

Despite the easing however, the 15.61 percent rate represented an 81 basis point rise in the year-on-year inflation from 14.8 percent in March 2011, which analysts said is not ‘good news’ for the country.

For instance, food prices soared by 20.3 percent in March 2012 compared to the corresponding period the previous year.

“Although it is down from the February print of 16.69 percent year-on-year this isn’t particularly good news,” Standard Chartered Head of Regional Research for Africa Razia Khan cautioned.

The government has pulled all stops to bring down the cost of living to single digit levels but this has proved an uphill task.

“Overall, we’re seeing a 1.34 percent month-on-month increase in CPI, driven by evidence of robust food price gains (up 2.44 percent). This is a marked difference from the low month on month prints we had become accustomed to, since the stabilisation of the Kenyan shilling,” she added.

The country is not out of the woods yet, she added, given that food prices continue to rise with no sign of abating in the horizon.

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“Given the pressures associated with last year’s drought and forex volatility, it’s a no-brainer that the CPI will continue to improve in y/y (year on year) terms, given the high base,” Khan added.

Despite this ‘disappointing’ outcome, Khan lauded the Central Bank of Kenya’s move to retain the indicative base rate at 18 percent despite the fact that the tightening of the policy stance has caused the market to regain confidence in the economy.

And coming just days before the next Monetary Policy Committee, the economist was of the opinion that the Central Bank Rate (CBR) is unlikely to be cut before June 2012.

“It supports our view that we are unlikely to see any policy rate easing in Kenya until the early June MPC meeting at the earliest,” she emphasised.

Khan however predicted that a four percent cut is inevitable although this is likely to come through in second half of 2012 supported also by reduced appetite for domestic borrowing.

“Kenya’s inflation profile should still improve meaningfully, allowing for a multi-year reduction in policy rates from H2 (second half) 2012. By then official easing will provide that much more of a boost to Kenya’s rates market, at a time when the offset to a higher borrowing requirement is likely to be more valuable,” the analyst projected.

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