Consumer price index is often used to monitor inflation and deflation in an economy. It refers to the difference in prices paid by typical consumers for retail goods and other items. The Kenya National Bureau of statistic (KNBS) use it on a monthly basis to inform the general public on the consumer price variation. Usually, data from the second and third week of the month is collected from selected retail outlets in 25 data collection zones located in Nairobi and other urban centres.
In the month of May, KNBS reported that the CPI increased by 0.68 percent from 167.07 in April 2016 to 167.99 in May 2016. The overall inflation rate in May 2016 stood at 5.00 percent.
The average retail prices of selected commodities in Kenya are taken to represent the overall commodities. These items include but not limited to Food and Non-Alcoholic Drinks (water, milk, green maize, sifted maize flour, beans, potatoes, tomatoes, oranges, mangoes, spinach etc.), Housing, Water, Electricity, Gas and Other Fuels, and Transport.
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Data collected from urban centres is a better presentation of the CPI. This is mainly because most of the population is located in the urban areas. Around 27% Kenyans live in urban areas & urbanizing rate is about 4.3% per year according to the world bank report.
A high rise in CPI in a short period of time shows periods of inflation while high drops of CPI in a short period of time shows periods deflation. It is, therefore, safe to say that, an increase in CPI represents inflation and the vice versa is true.
The CPI affects the investment decision in the short run. Therefore, investing in bonds should not really be deterred by the current rates because, in the long run, company’s revenue and earnings should increase at the same pace as inflation. However, if investing in real-time consumer goods, it is best to check the currents CPIs.
Remember, an increase in CPI decreases your purchasing power. In March-2016, the inflation rate was 6.45 percent and in May-2016, the inflation rate was 5 percent. This means that in the month of May, consumer goods were cheaper than in the month of March.