Food inflation rises to a 27-month high

Central Bank of Kenya Governor Patrick Njoroge during a post-MPC meeting press conference on January 28, in Nairobi. PHOTO | SALATON NJAU  

By CHARLES MWANIKI
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Summary

• CBK data shows that food inflation stood at 9.3 percent in December, up from 8.9 percent in November.
• CBK said it expects overall inflation to remain within the target range of 2.5 to 7.5 percent in the near term due to lower prices of fast-growing food items following the continuing rains, and lower electricity prices.

Food inflation has risen to a 27-month high, straining household budgets amid stagnant wages and job losses in the economy.

Data from Central Bank of Kenya (CBK) shows that food inflation stood at 9.3 percent in December, up from 8.9 percent in November.

This is the highest since September 2017, when the disruptions in the economy caused by civil commotion after the bitterly contested General Elections pushed prices of food and other basic household items up.

“Food inflation rose to 9.3 percent in December 2019 from 8.9 percent in November, reflecting increases in food prices, particularly non-vegetable crops,” said CBK in a post-Monetary Policy Committee (MPC) note.

The food basket saw a sharp rise between September and October 2019 (5.9 percent to 8.1 percent), when heavy rains caused delays in maize harvests and also ruined crop in the field.

This was coupled by failure to import grain to cover the deficit.

The sharp rise in food inflation has contrasted with that of the other categories of measuring the cost of living.

In December, fuel inflation stood at 2.5 percent, while non-food-non-fuel (core) inflation was 2.7 percent.

Overall inflation stood at 5.8 percent, with analysts pointing at food prices as the main upside risk.

“Demand side inflation — as evidenced by Non-food, non-fuel inflation — is muted. Our future concerns are around the likely impact of pressure on food prices, given the headline-grabbing locust invasion,” said Standard Chartered chief economist for Africa and Middle East Razia Khan.

She added, however, that despite the risk of higher food inflation, the CBK is correct to conclude that there is little evidence of demand pressure elsewhere in the economy, which informed the decision to cut the base lending rate from 8.5 percent to 8.25 percent in Monday’s MPC meeting.

CBK said it expects overall inflation to remain within the target range of 2.5 to 7.5 percent in the near term due to lower prices of fast-growing food items following the continuing rains, and lower electricity prices.

Economists at NCBA said in reaction to the MPC decision they see headline inflation remaining at the December level this month, anchored by higher food prices, also citing the locust menace as an upside risk.