May Inflation To Swing Between 6.7% And 7.1%

“We are projecting the y/y inflation rate for May 2022 to fall within the range of 6.7 – 7.1 percent,” said Cytonn Investments in their latest weekly report.

The inflation will be shaped by:

Increasing fuel prices – Fuel prices for the period 15th May 2022 to 14th June 2022 increased by 3.8% to Kshs 150.1 per liter for Super Petrol, 4.4 percent to Kshs 131.0 per liter for Diesel, and 4.9 percent to Kshs 118.9 per liter for Kerosene. With fuel being a major contributor to Kenya’s headline inflation, we expect the increasing fuel prices to continue to exert upward pressure on the inflation basket,

Increasing food prices – This was evidenced by the 12.2% y/y increase in the prices of food & non-alcoholic beverages as of April 2022 due to increased costs of production. Food prices increased by 3.0% m/m from March 2022 mainly due to increases in the prices of potatoes, fresh milk, and wheat flour among other food items occasioned by adverse weather conditions in most parts of the country.

The price of electricity which reduced by 15.7% in January 2022 marking the first phase of compliance with President Uhuru Kenyatta’s directive to cut the cost of electricity by 30.0% in order to reduce the cost of living. The reduction in electricity costs helped prices of goods remain stable during the month of April 2022 due to lower production costs.

“Going forward, we expect the inflation rate to remain within the government’s set range of 2.5 – 7.5 percent. However, concerns remain high about the inflated import bill and widening trade deficit as global fuel prices continue to rise due to supply bottlenecks worsened by the geopolitical tensions arising from the Russia-Ukraine invasion.”

“We expect increased inflationary pressure mainly due to the rising global fuel prices as fuel prices are a substantial input cost in the bulk of Kenya’s sectors such as manufacturing, transport, and energy. Further, the erratic rainfall being witnessed in the majority of the country is expected to continue driving food prices upwards, which will, in turn, continue to exert upward pressure on the inflation basket.

Key to note the Central Bank of Kenya’s Monetary Policy Committee (MPC) is set to meet on Monday, 30th May 2022, to review the outcome of its previous policy decisions and recent economic developments, and to decide on the direction of the Central Bank Rate (CBR). We anticipate the MPC taking a wait-and-see approach as it continues to monitor the country’s economic conditions and maintains the Central Bank Rate.