Kenya’s headline inflation rate fell to 5.7% in March 2024, marking the first time it dipped below 6% in 24 months. This represents a significant decline of 0.6 percentage points from the previous month’s rate of 6.3%.
The Kenya National Bureau of Statistics reported monthly inflation of 0.2%, compared with 0.1% in February.
However, the risk of high fuel prices keeping inflation near the upper end of the Central Bank of Kenya’s target range (2.5% to 7.5%) remains.
The CBK’s Monetary Policy Committee (MPC) will meet on April 3rd, 2024, to decide on interest rates. Analysts note that its decision will hinge on the shilling’s continued appreciation against the dollar, which can lower import costs and consumer prices.
The bank raised its benchmark rate in February to 13.0% from 12.5%.
Shilling Strengthens
This year, the Kenyan shilling has emerged as the world’s best-performing currency against the US dollar.
The shilling closed the first quarter (March 2024) at Ksh 131.8, representing a significant gain of 16.0% compared to Ksh 157.0 at the beginning of the year.
Inflation in Q2 2024 Outlook
Looking ahead to Q2 2024, NCBA Bank Research notes that inflation might gradually ease towards the target range midpoint of 5.0%.
However, this progress will depend on several evolving market factors.
The NCBA says the recent attacks on the Red Sea Channel could increase domestic inflation if shipping costs rise due to longer delivery times.
Recent foreign exchange fluctuations favour the local currency, potentially lowering near-term fuel prices.
However, the recent rise in global oil prices (up to $88.9 per barrel from $83 a month ago) “poses a downside risk.”.
“In contrast, we anticipate favourable conditions for agriculture production in the April-June period will support further moderation in food prices.”
