Lower food prices push inflation rate to 6.62 per cent in July

Kenya's cost of living index unexpectedly fell to 6.62 per cent in the month of July down from 7.03 per cent in June, 2015. This decline has been attributed to a drop in the price of foodstuffs, which consumes the largest portion of household budgets including maize flour, cabbages, sukuma wiki and potatoes as well as cooking gas.

According to figures from the Kenya National Bureau of Statistics, the food and non-alcoholic drinks index decreased by 0.6 per cent between June and July as observed from decreases in prices of various food items.

Over the same period, the price of housing, water, electricity, gas and other fuels increased. This has been attributed to cost increases in respect of cooking gas, fuels and other household utilities. In the new power tariffs, cost of consuming 50 KWh of electricity remained the same between June and July while the price of 200 KWh decreased by nearly 5 per cent.

The Consumer Price Index (CPI) is based on expenditures of both urban and rural households. The most important categories in the CPI are food and non-alcoholic beverages (36 percent of total weight); housing, water, electricity, gas and other fuels (18.3 percent) and Transport (8.7 percent). Clothing and footwear account for 7.4 percent of total index and furnishings, household equipment and routine household maintenance for 6.2 percent.

Inflation rate in Kenya averaged 10.79 per cent from 2005 until 2015, reaching an all-time high of 31.5 per cent in May of 2008 and a record low of 3.18 per cent in October of 2010.

A resurgent inflationary pressure in the economy in recent months has prompted Central Bank of Kenya (CBK) to tighten liquidity in the market by adjusting upwards the Central Bank Rate (CBR) and the Kenya Bankers Reference Rate (KBRR).

All eyes will now be on the next monetary policy committee meeting at the CBK on 5th August, 2015 in light of a slowdown in inflation figures. Kenya's currency has lost 11.5 per cent against the dollar this year and policy makers have warned there is a risk it could drive inflation higher.

The central bank raised its benchmark lending rate by a total of 300 basis points since June. Razia Khan, head of research for Africa at Standard Chartered in London, said the rate would still head higher by the end of the year.

"With the impact of shilling weakness still to be factored in, we see inflation above 9 percent by the year end, justifying the tightening stance of the central bank now," she said. The central bank has a medium term inflation target range of between 2.5 percent and 7.5 percent. - Additional reporting Reuters