Kenya’s inflation leaps to five-year high on rising food costs

Kenya’s inflation has risen to a high of 10.28 per cent in March, a rate last seen in May 2012. The rise is as a result of higher food prices due to an ongoing drought that has left close to three million people in the country in need of aid.

The inflation has moved further outside the Central Bank of Kenya's (CBK) preferred ceiling of between 2.5 per cent and 7.5 per cent, just as Treasury, in its 2017/18 draft budget announced taxation policies to rein in the rising cost of maize floor.

The cost of living measure stood at 9.04 per cent last month.

According to the Kenya National Bureau of Statistics (KNBS), the cost of food items including, spinach, maize flour, milk, potatoes and maize rose by by 3.18 per cent.

“The annual food inflation stood at 18.56 per cent in March, partly contributed by the prevailing drought conditions,” said KNBS director general Zachary Mwangi.

The biggest impact in the food items basket came from maize flour and dry maize. The monthly prices of a 2kg bag of sifted maize flour rose by an average 30 per cent to retail at $1.39 from $1.03 over the same period last year. Sugar recorded a 17.7 per cent increase last month to retail at $1.32 a kilo currently, from $1.11 in March last year. The cost of rice and milk has also risen by 7.7 and 6 per cent respectively, to retail at $1.93 a kilo and $0.56 a litre currently.

On Thursday during his 2017/18 budget presentation, Treasury Cabinet Secretary Henry Rotich announced that maize will be imported into the country duty-free over the next four months, in order to stem the rising prices of flour.

“In order to make these commodities affordable, I propose to zero-rate bread and maize flour.  I expect, therefore to see a reduction of the prices for these basic commodities enjoyed by the majority of our people,” said Mr Rotich.

The cost of electricity, fuel and transportation also rose, attributed to the increase in pump prices. In March, the housing, water, electricity, gas and other fuels’ index, increased by 0.69 per cent, partly due to increases in the cost of house rent, cooking fuels and water services.  The Transport Index also rose by 0.27 per cent mainly on account of increases in the pump prices of petrol and diesel.

On March 27, CBK held the benchmark lending rate at 10 per cent saying that it expected inflation to fall in line after two months.

“Unless there is a pronounced secondary price effect to food price inflation, or a hint of forex instability, there is not sufficient justification for the central bank to react to this spike. The headline inflation climbed faster than the market had expected, pointing to a potential slowdown for the Kenyan economy. Risks will have to be carefully gauged going forward,” said Razia Khan, head of research for Africa at Standard Chartered.