Inflation could hit 18 per cent by December

By James Anyanzwa

Kenya’s headline inflation is expected to hit 18 per cent by the end of this year as rapid growth in food and fuel prices pile pressure on the cost of living.

Analysts at the Standard Bank of South Africa have also cautioned of a looming slow down in economic activities, with the economy projected to register between 4.3 per cent, and five per cent growth this year.

The general level of prices of goods and services in the country rose by 12.05 per cent in April, compared to 9.19 per cent in March, fuelled by skyrocketing food and fuel prices. Mr Stephen Bailey-Smith, Head of Africa Research at the bank — which operates as CFC Stanbic Bank in Kenya — pointed out that upward inflation is likely to persist, and said that the tightening of the Central Bank of Kenya’s (CBK) monetary policy is inevitable.

"The major threat to our optimistic growth scenario comes from the rising commodity prices. This has implications obviously on inflation, interest rates and exchange rates," Bailey-Smith told a media briefing in Nairobi on Tuesday.

Upside pressure

"Predictably, much of the upside pressure emanated from food inflation that reached 19.1 per cent year-on-year in April, compared to 3.8 per cent in a similar period last year. While food has played a predominant role in pushing headline inflation higher, inflationary pressures are becoming widespread," he added.

Mr Bailey-Smith said the resumption of higher global oil prices is likely to sustain an upward pressure on the Consumer Price Index (CPI). He noted that since April 10, 2011, most sub-indices forming the CPI had recorded an acceleration of at least three percentage points in their growth rates. Most analysts agree that the latest inflationary figures are likely to persuade the CBK to further tighten its monetary policy in the remainder of this year.

Not doing enough

But the bank has been blamed for not doing enough to contain inflation, which jumped to double digits last month (April).

The Government raised the minimum wage by 12.5 per cent, and cut some taxes on kerosene, maize and wheat in a bid to avert a looming general strike over the escalating cost of living.