Low fuel prices drive inflation down to 4pc

By FRANKLIN SUNDAY

Nairobi,Kenya:A fall in fuel prices has pushed down inflation rate to settle at 4.05 per cent in May, up from 4.14 per cent in April.

Data released by the Kenya National Bureau of Statistics, KNBS indicates that inflation figures have remained below target for the 8th month running, raising hopes for a possible round of interest rate cuts.

KNBS stated that a reduction in kerosene and electricity prices led to a 0.13 per cent fall in the housing, water, electricity and other fuels index contributing to an overall fall in inflationary pressures.

Pump prices for petrol and diesel also eased leading to a 0.94 per cent fall in the transport index.

This is the eighth month in a row that the inflation figures have remained within the government’s target of three to seven per cent since last August.

Earlier this month, Central Bank cut its benchmark-lending rate by 100 basis points to 8.5 per cent and the further fall in the rate of inflation has created hopes that the base lending rates could come lower in the near future.

However, despite the lowering of the CBK base lending rate by the by the regulator for close to a month, most commercial banks are yet to effect the cut in their lending rates.

Analysts interviewed, however, say it will take some time for the full impact of this easing to feed through into the economy.

Inflation is expected to remain stable in the coming months or fall on the back of falling food prices, mainly on account of improved weather conditions giving Kenyan households more disposable income in their pockets.

Energy and oil prices are projected to remain stable, helping businesses manage their spiraling operational costs.

The manufacturing sector consumes 60 per cent of the country’s electricity and is vulnerable to unreliable power supplies and high energy costs.

There are expectations of higher demand for goods and services as business picks up in coming months, with the CBK projecting this could however trigger fresh inflationary pressures.