Kenya’s inflation rate increased to a five-month high at 3.5% in February due to rising food prices. Core inflation held steady at 2%, but potential tax hikes could threaten the outlook. Stable exchange rates and falling energy costs may influence monetary policy moving forward.
In February, Kenya experienced a rise in its annual inflation rate, reaching a five-month high due to escalating food prices. The Kenya National Bureau of Statistics reported a 3.5% increase in consumer prices from 3.3% in January, aligning with central bank expectations. Core inflation, which excludes energy and volatile food prices, remained stable at 2%, indicating subdued consumer demand.
Food and non-alcoholic beverage prices, which constitute a significant portion of the inflation basket, increased by 6.4% in February, slightly up from 6.1% in January. Moreover, transport costs remained steady, reflecting no changes in gasoline prices during the recent mid-month review. The stability of the exchange rate, coupled with declining global fuel prices, is expected to help moderate energy costs for Kenya, a major importer of refined petroleum.
Home, water, and energy prices saw a notable decrease, falling by 0.8% in February after a decline of 1.6% the previous month. Despite these developments, the reinstatement of various tax measures in December may pose a threat to the inflation forecast. Notably, the railway development fund’s import levy increased from 1.5% to 2%, along with changes affecting agricultural additive taxes, which could escalate production costs for farmers and manufacturers.
In summary, Kenya’s inflation rate reached a five-month peak in February mainly due to increasing food prices, though core inflation remained unchanged, suggesting weak demand. Factors such as stable transport costs and decreasing housing-related expenses contributed positively. However, potential risks from tax reforms could impact future inflation rates. The monetary policy committee may consider further interest rate cuts to stimulate economic activity in light of these trends.
Original Source: financialpost.com
