Why cost of living cooled slightly in December

By Morris Aron

The runaway inflation rate slowed marginally in December, the first time in 13 consecutive months giving hope to an imminent ease in the cost of living in coming months.

According to data from the Kenya National Bureau of Statistics (KNBS), inflation — which measures the general change in the price of goods and services — dropped to 18.93 per cent this month from 19.72 per cent in November mainly due to a drop in the cost of electricity and kerosene.

While the cost of food, housing, water and other basic essentials continued to rise compared to the previous month, a unit cost of electricity and kerosene dropped by 9.90 per cent and 4.43 per cent.

"Indeed, as a result of reduced fuel and foreign exchange adjustments charges, the cost of consuming 50 units of electricity down from Sh819 in November to Sh736 in December," read a statement from KNBS.

Analysts said the slight easing of price pressures was not surprising, after the Central Bank of Kenya (CBK) raised its key lending rate by 11 percentage points from early October to 18 per cent and fuel prices fell in December.

Three of five analysts surveyed by Reuters had predicted a fall in inflation thanks to the cycle of monetary tightening and a stronger shilling.

Credit growth

Some analysts said CBK was likely to leave rates on hold at the next Monetary Policy Committee on January 11 to cool inflationary pressures within the economy stemming from rapid credit growth.

"We believe that inflation has now peaked and will come down fairly rapidly in the first half of next year, comfortably returning to single digits by mid-year as targeted by CBK," said Mark Bohlund, senior economist for Sub-Sahara Africa at IHS Global Insight.

"However ... a swift rollback of the monetary tightening over recent months would carry risks to the CBK’s medium-term inflation target of five per cent."

According to the data released On Wednesday, while the price of beef, bread, tomatoes, onions and chicken went up by between two and four per cent, the prices of sugar, maize flour, maize grain and rice went down by between 1.9 and seven per cent.

This happened at a time when the cost of rent and cooking fuels including charcoal, firewood, and gas continued to increase.

However, despite the decrease in fuel prices, the cost of transport still went up during as a result of a rise in public transport fares.

The drop in inflation is closely related to the dropping pump pries and the onset of rains.

"Rains cool off inflation," said Alykhan Satchu an investment analyst.

"It is not surprising because we have seen the rains which has led to a slowdown in food prices, while the cut in oil prices was expected to (have an impact)," Dickson Magecha, a trader at Standard Chartered, said.

"We expect a much bigger drop in coming months as imported inflation will come down with foreign exchange stability."

— Additional reporting by Reuters