Kenya’s inflation rate eased to 4.3% in July, down from 4.6% in June, according to data from the Kenya National Bureau of Statistics (KNBS).
On a monthly basis, inflation was -0.2% from 0.4% in June.
The decline was primarily driven by falling prices for food and fuel.
Key food items such as tomatoes, wheat flour, onions, and maize flour saw significant price reductions.
Additionally, a drop in electricity and kerosene prices contributed to a lower Housing, Water, Electricity, Gas, and Other Fuels index. However, a slight increase in gas prices tempered the overall decline.
The transport sector also experienced a price decrease due to lower Super Petrol, Diesel and Kerosene which dropped by Kshs 1.0, Kshs 1.5, and Kshs 1.3 each respectively.
“This was contrary to our expectation of an increase, as it came below our projected range of 4.7% to 5.0% mainly on the back of the weakening of the Kenya Shilling against the US Dollar having recorded a 2.4% month-to-date decline to Kshs 132.6 as of 26th July 2024 from the Kshs 129.5 recorded at the beginning of the month, a contrast to the 0.5% gain recorded last month and the 15.6% year-to-date gain from the Kshs 157.0 recorded at the beginning of the year,” Cytonn investments disclosed on the declining inflation trend.
Inflation Outlook
Despite the positive trend, inflation is expected to remain stable in the near term, global commodity prices and geopolitical tensions could impact the outlook.
Market analysts expect the Central Bank of Kenya to maintain its benchmark interest rate at 13% during its August 6th meeting, given the current low inflation environment.
“For the Monetary Policy Committee, despite low inflation pressures allowing room for monetary policy easing, a rate cut by the Fed could still be the key trigger. The US Federal Reserve may cut rates in September if August’s inflation report shows progress toward the 2.0% target. Therefore, we expect the central bank to maintain the CBR at 13.0% in the policy meeting on August 6, 2024,” says NCBA Market Research analysts.
“The risk, however, lies in the fuel prices which despite their decline over the last months, remain elevated compared to historical levels,” adds Cytonn Investments.
“In our view, the rate will be pegged on whether the shilling will sustain its appreciation against the dollar, resulting in a decline in the import bill and costs passed to consumers through hiked consumer prices.”
Producer inflation also showed signs of cooling, with a decline of 1.79% in the second quarter compared to 7.40% in the first quarter. This indicates a potential slowdown in manufacturing costs.
