Kenya’s headline inflation rate dropped below the 4.0% mark for the first time in five years.
According to data released by the Kenya National Bureau of Statistics (KNBS), the inflation rate in September 2024 stood at 3.6% from 4.4%, the lowest level since July 2010. On a month-on-month basis, inflation was at 0.2% from 0.0% in August.
Kenya’s headline inflation rate has reached a five-year low, reflecting the positive impact of various factors, including favourable agricultural conditions, lower oil prices, and monetary policy measures.
The primary driver of the inflation decline was a 5.1% increase in the Food and Non-Alcoholic Beverages category. There were significant hikes in oranges (24.4%), Irish potatoes (31.2%), cabbages (39.5%), and beef (14.5%). However, prices for sugar, white wheat flour, and loose green maize decreased by 29.7%, 10.9%, and 19.8%, respectively.
The Housing, Water, Electricity, Gas, and Other Fuels Index rose by 2.6%. This increase was mainly attributed to higher prices for charcoal (19.1%) and gas (14.3%). These increases were partially offset by declines in kerosene (21.8%) and electricity prices (2.7% for 50 kWh and 10.3% for 200 kWh).
The Transport Index grew by 0.5%, primarily due to a 1.8% increase in city bus fares. However, petrol and diesel prices fell by 10.7% and 14.6%, respectively.
On a month-to-month basis, inflation edged up by 0.2%, with the Food and Non-Alcoholic Beverages category rising by 0.4%.
“While the easing trend is welcome, it would seem that we could be touching on the floor. Firstly, the weather forecasts into October-December indicate the potential for below-average rainfall in parts of the country that could portend higher food prices,” says NCBA on the September CPI Report.
Implications for Monetary Policy
The decline in the inflation rate provides the Central Bank of Kenya (CBK) with more flexibility in determining its monetary policy stance. The recent cut in interest rates by the US Federal Reserve indicates a global trend towards looser monetary policies.
However, the CBK will need to carefully consider the domestic economic conditions before making any significant changes to its interest rate policy.
“Going forward, we expect inflationary pressures to remain anchored in the short term, remaining in the CBK’s target range of 2.5%-7.5% aided by the stable fuel prices, decreased energy costs and stability in the exchange rate,” says Cytonn Investments.
“However, risks remain, particularly from the potential for increased demand-driven inflation due to accommodative monetary policy.”
