Kenya’s Inflation Accelerated for Seventh Month in May

Kenyan inflation accelerated for the seventh consecutive month in May, adding to pressure on the central bank to increase interest rates and keep draining liquidity from the financial system.

The inflation rate climbed to 13 percent, a 25-month high, from 12.1 percent in April, the Kenya National Bureau of Statistics said in an e-mailed statement today. Prices rose 1 percent in the month, the Nairobi-based statistics agency said.

“The market has been expecting inflation to trend upwards,” Andrew Murugu, head of global markets for CfC Stanbic Bank, said by phone from the capital today. The central bank needs to increase interest rates, he said.

The bank’s monetary policy committee will meet today to set its benchmark rate, currently 6 percent. All seven economists surveyed by Bloomberg expect an increase, with forecasts ranging from a quarter-point to 1 percentage point.

Food and fuel have been the chief drivers of inflation. Rains between March and May, the nation’s long rainy season, were “very poor” in most parts of the country, damaging crops and pushing up prices, the Kenya Meteorological Department said on May 26.

Food and non-alcoholic drink prices jumped an annual 20 percent in May, while transport, including petrol and bus fares, rose 22 percent, according to the statistics bureau.

Petrol Prices

A surge in global oil prices led to a 23 percent increase in fuel costs in Kenya between November and May, Kaburu Mwirichia, director general of the country’s Energy Regulatory Commission, said on May 20. Kenya this month raised the price of retail petrol in the capital, Nairobi, where the majority of fuels are consumed, by 3.8 percent.

The central bank raised its key rate by a quarter-point on March 22, reversing a cut announced two months earlier. It has also sold 20.4 billion shillings ($238 million) of repurchase agreements since May 11 to push up interbank lending rates and curb demand.

Seeking to curb prices, Kenya’s government has also pledged to remove duties on imported wheat and corn. It has already reduced taxes on diesel and kerosene, a fuel used for cooking and lighting.

“Everyone’s expectations are anchored in higher inflation,” Robert Bunyi, managing director of Mavuno Capital, said by phone from Nairobi on May 25. “High fuel prices have come out very strongly and world food prices are on the increase. I would expect the bank to raise rates further.”

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