Inflation rate maintains upward momentum, jumps to 7.67pc

Kenya’s inflation rose marginally to 7.67 per cent in the year to July, maintaining acceleration on the back of high food and energy prices. The rate was up from 7.39 per cent posted in June.

According to figures released by the Kenya National Bureau of Statistics (KNBS) yesterday, the 0.5 per cent month on month increase broke the Central Bank’s 7.5 per cent ceiling and analysts are cautioning that things could get worse.

This was despite the fact that the Central Bank had earlier last month refrained from raising the base lending rate, which has remained at 8.5 per cent for a year now, in an attempt to cool down inflationary pressures.

Analysts at Standard Chartered Bank stated that the rates were as per projections and are expected to hold steady over the next two months.

“We expect inflation to remain around these levels until September 2014, when a large base effect – associated with the VAT Bill last year – should drive headline CPI down to c. 6.6 per cent in September,” said Razia Khan, head of research for Africa at Standard Chartered.

Khan, however, cautioned that the reduced rate would only be temporary with inflation rising thereafter, with a good chance of it hitting 8 per cent by the end of the year.

Kenya has experienced major security threats in Coast region that have impacted negatively on the economy. In addition to this, delayed seasonal rains have dampened farmers’ harvests worsening the situation.

“Should we see any further deterioration in economic indicators over the coming months, the authorities may well opt to keep the CBR on hold at its current level for even longer, while encouraging a downward move in short-dated T-bill yields,” said Khan.

KNBS blamed the inflation uptick last month on a 0.5 per cent increase in the food and non-alcoholic drinks index, which accounts for just over a third of the basket of goods used to measure inflation.

In economic terms, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.

When the general price level rises, each unit of currency buys fewer goods and services.

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