CBK tipped to hold rate as inflation rises

Fuel is expected to be a major inflation driver in June. FILE PHOTO | NMG 

By CHARLES MWANIKI

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Summary

• Analysts see inflation rising to five per cent, citing the recent upward drift in the price of crude.
• Food, transport and energy account for the lion’s share of the consumer price index and are also correlated because an increase in transport cost also filters through to the price of food.
• The Kenya National Bureau of Statistics is expected to release inflation data for June this week. The number stood at 3.95 per cent in May.

Higher petrol and food prices are expected to push headline inflation up this month but muted demand side pressure is likely to forestall monetary policy tightening.

Analysts as Commercial Bank of Africa (CBA) say in their latest weekly fixed income report that they see inflation rising to five per cent, citing the recent upward drift in the price of crude that saw the Energy Regulatory Commission (ERC) raise the price of diesel in Nairobi by Sh4.96 to Sh103.60 and petrol by Sh1.64 to Sh108.81 in its June review.

Food, transport and energy account for the lion’s share of the consumer price index and are also correlated because an increase in transport cost also filters through to the price of food.

“We expect further upside on the headline inflation number to about five per cent driven by higher oil prices, pressure on some food prices amid a declining base,” said CBA in their report.

“Global oil prices are in the near term expected to remain fairly elevated after producers decided to increase production by a nominal one million barrels per day, way lower than markets had anticipated.”

READ: Inflation rises marginally in May on higher cost of food

The Kenya National Bureau of Statistics is expected to release inflation data for June this week. The number stood at 3.95 per cent in May.

The Monetary Policy Committee of the Central Bank is not scheduled to meet until July 30, but the CBA analysts do not see the inflation situation in the country necessitating a change in its policy path given that core inflation, also referred to as non-food-non-fuel inflation, has remained relatively unchanged in recent months.

In April, core inflation stood at 3.8 per cent, rising marginally to 3.9 per cent in May due to a stronger shilling that slightly increased the purchasing power of Kenyans.

In its last meeting in May, the MPC held the base rate at 9.5 per cent, citing the fact that inflation was within the preferred range.

The shilling’s exchange rate has also been largely range-bound within the 100.50 to 101.50 range for most of the month and is expected to remain fairly stable with inflows from Kenyans living abroad, horticulture exports and tourism expected to offset any spike in dollar demand from petroleum importers.