September Inflation Projected To Hit 7 Percent

“We are projecting the y/y inflation rate for September 2021 to fall within the range of 6.6 – 7.0 percent,” said experts from Cytonn Investments in this week’s report.

The recent hike in fuel prices, with Super Petrol prices increasing by 6.0 percent to 134.7 shillings per liter, from 127.1 shillings per liter.

Diesel and Kerosene prices also increased by 7.4 percent and 13.2 percent, respectively to 115.6 shillings and 110.8 shillings per liter, from 107.7 and 97.9 shillings per liter, respectively.

With fuel being a major contributor to Kenya’s headline inflation, the increase in fuel prices is expected to have a ripple effect in increasing the prices of other contributors to the consumer price index like food and transport.

Increase in food and non-alcoholic drinks prices, which have the largest weighting in the consumer price index at 32.9 percent, attributable to an increase in imported components like cooking oil and below-average rainfall recorded in most parts of the country.

Upward readjustment of the fuel cost charge on electricity bills by 2.9 percent to 3.9 shillings per Kilowatt hour (KWh) from 3.8 shillings per Kilowatt hour (KWh) and foreign exchange fluctuation tariff for electricity usage to 76.0 cents per Kilowatt hour (KWh) in September from 68.0 cents per Kilowatt hour (KWh) in August.

Going forward, we expect the inflation rate to remain within the government’s set range of 2.5 – 7.5 percent. However, our concern on the inflation rate nearing the upper limit of 7.5 percent persists, driven by increases in fuel and food prices which are major contributors to Kenya’s headline inflation.

Should the increase in inflation persist, the CBK and the Government may have to intervene with monetary and fiscal policies in order to comply with the conditions set by the IMF, in the Extended Credit facility agreement between the IMF and the Government in February 2021.

In the agreement, IMF indicated that Kenya’s inflation should remain well anchored and between the government target range so that Kenya can continue accessing the loan facility already approved. Given that the next IMF evaluation test date is in December 2021, the government has a sufficient period to readjust in the event of a spike in the inflation rate in the months in between.