Kenya Inflation Tops Target Midpoint a Third Month on Energy

Article content

(Bloomberg) — Kenya’s annual inflation rate exceeded the midpoint of the central bank’s target range for a third month, as energy costs fueled price growth.

Article content

Consumer prices rose 6.5% in July, compared with 6.4% in June, the Kenya National Bureau of Statistics said Friday in an emailed statement. The nation’s monetary policy committee had projected a rate of 6.7% this month.

Article content

Article content

Inflation in Kenya, an oil importer, has tracked higher since the start of the US-Israeli war on Iran in February triggered a surge in energy and fertilizer prices. The central bank, which aims to anchor price-growth expectations at 5%, held its benchmark interest rate at 8.75% in June for the second meeting in a row in order to assess the impact of the conflict on its forecasts. 

Article content

Article content

Core inflation, the central bank’s preferred gauge of underlying price growth, edged up to 3.2% in July from 3.1% in the previous month, reflecting second-round effects from higher fuel prices. The transport index rose 15.6%, even after the authorities left gasoline-pump prices unchanged, while the food and non-alcoholic index was 9% higher.

Article content

Article content

Fuel demand has eased in Kenya since the start of Middle East conflict and is about 6% below normal seasonality through May, according S&P Global Ratings. That suggests “the energy shock is increasingly weighing on growth” through demand destruction, it said in a statement.

Article content

Falling diesel consumption signals softer freight, industrial activity and domestic demand, S&P said.

Article content

Higher fertilizer prices have inflated Kenya’s food index, which accounts for the bulk of the inflation basket. 

Article content

The country has been hit by import delays that disrupted commercial farming, according to the Food Security and Nutrition Working Group, a humanitarian network. Corn prices are as much as 21% above the five-year average in some locations, it said.

Article content

Article content

The nation is facing an “elevated risk” of food insecurity owing to corn-crop failures in the breadbasket regions of Kenya’s northern Rift Valley — an area that produces the bulk of the nation’s staple gain — because of poor rains, according to the Kenya Meteorological Department.

Article content

A weather-roiling super El Niño event – which is expected to be characterized by above-average rainfall in Kenya — is expected to arrive around October, with the risk of flooding that may destroy crops and damage infrastructure.

Article content

Still, the central bank is seen leaving interest rates unchanged at 8.75% when policymakers meet on Aug. 11, to help spur private-sector lending and boost economic growth.

Article content

Sign up here for the daily Next Africa newsletter and subscribe to the Next Africa podcast on Apple, Spotify or anywhere you listen.

Article content

(Updates with analyst comment from fifth paragraph)

Article content