June Inflation To Hit 7.3% On Higher Fuel Prices

“We are projecting the y/y inflation rate for June 2022 to fall within the range of 6.9 – 7.3 percent,” said Cytonn in their latest report.

The inflation rate will be pegged on increasing fuel prices. Fuel prices for the period 15^th June 2022 to 14^th July 2022 increased by 6.0 percent to 159.1 shillings per liter for Super Petrol, 6.9 percent to 140.0 shillings per liter for Diesel, and 7.6 percent to 127.9 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,” added Cytonn.

Increasing food prices will also inform the inflation rate. This was evidenced by the 12.4 percent y/y increase in the prices of food & non-alcoholic beverages as of May 2022 due to increased costs of production.

Food prices increased by 1.3% m/m from April 2022 mainly due to increases in the prices of maize flour, cooking fat, and cooking oil (salad) among other food items occasioned by adverse weather conditions in most parts of the country coupled with high fertilizer prices.

The price of electricity which reduced by 15.7 percent in January 2022 marking the first phase of compliance with President Uhuru Kenyatta’s directive to cut the cost of electricity by 30.0 percent in order to reduce the cost of living.

The reduction in electricity costs helped prices of goods remain stable during the month of May 2022 due to lower production costs.

Cytonn expects the inflation rate to remain within the government’s set range of 2.5 – 7.5 percent. The move by the Monetary Policy Committee (MPC) to increase the Central Bank Rate (CBR) by 50.0 bps to 7.5 percent, from the previous 7.0 percent is expected to anchor inflation expectations, as well as help, prop the shilling given the current YTD depreciation of 4.0 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.

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