Kenyan Inflation Accelerates for Ninth Consecutive Month in July to 15.5%

Kenyan inflation accelerated for the ninth straight month in July, increasing pressure on the central bank to tighten monetary policy in East Africa’s largest economy.

Prices climbed 15.53 percent from the year earlier, compared with 14.49 percent in June, on rising food and fuel costs, the Kenya National Bureau of Statistics said in an e- mailed statement today from Nairobi, the capital. Inflation accelerated 1.27 percent in the month.

The central bank’s Monetary Policy Committee unexpectedly left the benchmark interest rate unchanged at 6.25 percent at its last meeting on July 27, following two consecutive increases, saying tighter monetary policy won’t reduce supply- side price pressures. Food costs are rising because of a regional drought, while higher oil prices are pushing up transport costs.

“Even as the central bank’s recent policy actions have been varied, we continue to believe that further policy tightening is probable in the medium term, given significant inflation risk,” Barclays Plc’s Absa Group Ltd. said in an e- mailed note today.

Power rationing that began July 27 and may last as long as three months threatens to worsen the inflation outlook and undermine economic growth, Andrew Mwangangi, head of fixed income for Kestrel Capital Ltd., said by phone from Nairobi before today’s announcement.

Transport Costs Jump

Transport costs, which include fuel, jumped 23.62 percent in July, while food and non-alcoholic beverages advanced 24.02 percent, the statistics bureau said. Housing inflation, which takes into account water and electricity, grew 12.55 percent.

The shilling appreciated as much as 0.3 percent against the dollar after the data was released and traded 0.16 percent weaker at 91.20 as of 4:18 p.m. in Nairobi.

“Normally the government fights higher inflation by raising rates so there may be an expectation of an increase,” Julius Kiriinya, a dealer with ABC Bank Corp, said by phone from Nairobi.

Inflation may slow to between 8 percent and 9 percent by the end of the year if the central bank raises rates, while failure to tighten monetary policy may keep the inflation rate above 12 percent, the International Monetary Fund said July 7.

Inflation has surpassed the government’s 5 percent target every month since January. Kenya’s monetary policymakers meet every two months to decide on the key lending rate.

The government expects economic growth to slow to 5.3 percent this year from 5.6 percent in 2010.

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.

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