Inflation falls to 15 per cent

By John Oyuke

Inflation rate declined for the fourth consecutive month in March to 15.61 per cent from 16.69 per cent the previous month though there is no respite for consumers struggling with high cost of living.

The consumer price index (CPI), which measures changes in the price level of consumer goods and services purchased by households rose 1.34 per cent in the month, reversing a 0.04 per cent drop in February.

The decline, though lowest since July 2011’s 15.53 per cent, increased the likelihood that Central Bank might opt to keep rates on hold again at its next meeting in April 4, instead of beginning a cycle of monetary policy easing.

According to the head of Africa research at Standard Chartered Bank, Razia Khan the turn in the month-on-month rate of Kenyan CPI would sit uncomfortably with the country’s monetary authority.

Early June

"So the Central Bank of Kenya (CBK) was correct not to rush into any interest rate easing. It also supports our view that we will probably not see any official easing until the early June MPC meeting, perhaps," Khan said. The Monetary Policy Committee (MPC) is an executive committee of the Central Bank, which is responsible for formulation of monetary policy.

According to Kenya National Statistics Bureau (KNBS) latest data, component indexes rose across the consumer price inflation basket, with the exception of transportation costs which dropped a modest 0.22 percent.

Food and alcoholic beverages rose 2.44 per cent, restaurant and hotel prices climbed 1.12 per cent and housing, water and energy costs increased 0.82 per cent. The increase was mainly due to rise in prices of milk, potatoes, kale (sukuma wiki), tomatoes and onions in March compared to February.

For instance, a half litre packet of milk was retailing at an average price of Sh38 in March 2012 compared to Sh34 in February 2012 a rise of 11.8 per cent.

Food prices have increased by 20.3 per cent in March 2012 compared to March 2011, according to the bureau.

Housing, water, electricity, gas and other fuels index rose by 0.82 per cent between February and March due to increase in the cost of electricity. This month, the cost of 200 KWh units of electricity was Sh3,454 compared to Sh3,132 last month, an increase of 10.3 per cent.

During the month under review, Transport index declined by 0.2 per cent due to marginally reduction of diesel prices and public transport.

However, prices of most of the other commodities in the Consumer Prices basket remained relatively stable in March compared to February 2012 levels.

"What this shows you, if you look at where we were last month and this month, it means for most of the components that make up inflation they are actually slowly rising," Ignatius Chicha, head of markets at Citibank, said.

"So that would warrant a bit of caution on the part of the central bank if they look at the numbers month-on-month ... and decide not to do anything on the central bank rate," he said.

CBK maintained its key interest rate at 18 percent during a meeting of its key policy body MPC early this month.