Inflation Expected to Rise in the Month of April

Inflation for the month of April has been projected to rise to between 10.7 percent to 11.0 percent, from 10.3 percent in March, driven mainly by a rise in food prices caused by the ongoing drought.

Most parts of the country have greatly been affected by the ongoing drought which has been experienced over the past six months. Agriculture, which tends to be the backbone if the country has hit rocks as there has been no rainfall for this period of time and therefore leading to a decline in the sector.

According to the weekly report by Cytonn Investments, going forward, upward inflationary pressures are expected to persist, driven by  a number of factors including the food component of the Consumer Price Index (CPI) basket due to the persistent dry weather that is expected to carry on for the first half of the year, with depressed rainfall in the long rains season that comes in between March and May, the global recovery of oil prices, which will lead to cost-push inflation, and the global strengthening of the dollar increasing the cost of imports, as it results in a weaker shilling.

These upward inflationary pressures are expected to persist in the first half of 2017, and average above the upper bound of the government target range of 2.5 percent to 7.5 percent.

Moreover, the Kenya National Bureau of Statistics (KNBS) released the 2017 Economic Survey, with GDP growth for 2016 coming in at 5.8 percent, up from 5.7 percent in 2015. This was in line with Cytonn’s projection of a 5.7 percent to 6.0 percent growth.

The survey further revealed that growth in the fourth quarter of the year was hampered by the drought that took a toll on agriculture and electricity supply, whereas accommodation and food service registered the biggest improvement, growing at 13.3 percent in 2016, from a decline in growth of 1.3 percent in 2015, in line with Cytonn’s outlook of a recovering tourism sector.

Agriculture experienced subdued growth of 4.0 percent in 2016, from 5.5 percent in 2015, with the slow-down attributable to unfavorable weather conditions on account of depressed rainfall in the second half of the year. Real Estate, meanwhile, registered an 8.8 percent growth in 2016, up from 7.2 percent in 2015, highlighting the increased confidence and growth in the sector.