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August Inflation At 8.36 Percent, Central Bank's Rate Eyed

September 1, 2014

Constant Munda

INCREASED food prices pushed up Kenya's inflation to a 25-month in August, data from Kenya National Bureau of Statistics showed yesterday.

The inflation touched 8.36 per cent mark- 0.86 per cent above the government's 7.5 per cent upper limit target- up from last month's 7.67 per cent in July, the KNBS said.

The growth in the cost of living overshot analysts' expectations for a much benign rise to near eight per cent, and will present a headache to the Monetary Policy Committee that meets tomorrow to review the Central Bank Rate.

Analysts expect the MPC to increase the present 8.5 per cent indicative CBR, set in April 2013, by between 50 and 100 basis points to stabilise the macroeconomic environment.

The committee will be walking a tight-rope given sustained pressure from high ranking government officials led by Deputy President William Ruto for a single-digit interest regime from the present average of 16.91 per cent base lending rate.

"It's interesting what decision the MPC will come up with given the hard stance taken by the government on interest rates," head of research at Sterling Capital Moses Waireri said. "Last month, we hinted at a likelihood of the CBR rate moving to between nine and 9.5 per cent and we still hold this position."

Sterling, in its report on August 14, had projected the inflation rate to approach eight per cent on "high electricity costs and increased probability of higher oil prices as renewed violence in Iraq and Libya threaten".

The spike in the cost of living was however majorly pushed by a 1.75 per cent jump month on month and 10.85 per cent year on year in food and beverage prices, according to KNBS data. A kilo of maize grain, goat meat, offals or matumbo, mangoes and processed milk are some of the food items whose prices rose by 11.3, 7.4, 6.8, 10.4 and 3.6 per cent, respectively, year on year.

"Electricity cost remained almost at the same level," KNBS acting director general Zachary Mwangi said in the statement. "However, a recent revision of power tariff caused higher electricity charges to the consumers in August 2014 compared to the same period in 2013."

Housing and energy cost rose by 0.32 per cent month on month and 6.98 year on year while transport costs were up 0.73 and 11.68 per cent over the respective periods.

Head of Africa's macroeconomic research at Standard Chartered Bank Razia Khan said the "surprise" sprint in overall inflation pointed to a limited room for easing interest rates further.

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Source: AllAfrica

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