Inflation projected to peak at 12 per cent

By Njiraini Muchira

Projections by the Central Bank of Kenya (CBK) that inflation would drop to a single digit this year is unfeasible, a fund management firm has said.

British American Asset Managers (BAAM) said that although inflation has been easing after an unprecedented increase last year, the decline would be gradual closing 2012 at about 12 per cent.

This is way high compared to CBK projection that inflation would decline to about five per cent by end year.

"In 2012, we expect inflation to drop as maize production and energy prices stabilise," said Andrew Kasaine, a Portfolio Manager at BAAM.

"But it will still remain at two digits of 12 per cent away from the CBK target."

The decline, though gradual, will nonetheless ease the pressure on Kenyans who had to endure a steady surge in inflation for the better part of last year to a high of 19.72 per cent in November before easing to 18.93 per cent in December and 18.31 per cent last month.

Despite the relatively high inflation expected this year, the economy is projected to rebound after a sluggish performance last year due to numerous shocks that included high fuel price, drought, depreciation of the shilling and turmoil in global economy.

According to BAAM, gross domestic product growth last year stood at 4.5 per cent down from 5.2 per cent in 2010.

This year, the economy is projected to expand by 5.3 per cent.

"Prospects of rainfall, falling inflation risks and lower energy prices are likely to improve the 2012 growth prospects while the recent stability of the shilling has tampered inflationary expectations," said BAAM managing director Edwin Dande.

Guarded optimism

He, however, urged caution because 2012 is a transition year and the stability of the economy will largely depend on how the country maneuvers the general election.

"We are cautious of how things will unfold but we are hopeful of peaceful elections," he observed.

BAAM, which offers investment management and advisory services to individuals and institutions clients, has over Sh21 billion in assets under its management.