Cytonn Investments Limited has projected that the inflation rate for the month of May will range between 3.8 and 4.1 percent up from 3.7 percent in April.
According to Cytonn, the inflation rate is expected to rise mainly due to a rise in the transport index driven by a rise in petrol and diesel prices by 0.3 percent and 0.8 percent to 107.2 shillings and 98.6 shillings per liter respectively during the month.
The housing, water, electricity, gas & fuel index is also expected to rise but at a slower rate than last month due to a rise in the price of cooking fuels, with prices of kerosene and charcoal rising, being countered by a decline in electricity prices as the fuel and foreign exchange levy components of electricity decline by 7.5 percent and 15.3 percent respectively.
Food inflation is expected to be up to m/m attributed to the destruction of crops in some regions from the heavy flooding and impassable roads making accessibility to markets by farmers and traders difficult.
However, on a y/y basis, food inflation will be much lower than it was last year, coming from a high base in May 2017 where inflation was at the year’s peak of 11.7%, due to adverse effects of the drought.
As the country approaches the 2nd half of the year, analysts expect inflation to start rising gradually, mainly due to:
- Amendments to tax laws that will see fuel and select food item prices increase, despite optimism expressed by the Ministry of Agriculture regarding an increase in maize production driven by the healthy rains we have experienced this far
- A lower base effect, given declining inflation in the 2nd half of 2017,
Going forward, “we expect inflation to average 7.0 percent over the course of the year down from 8.0 percent in 2017, which is within the government target range of 2.5 – 7.5 percent,” said Cytonn.