Inflation Rate Unlikely To Ease After Peaking 5 Years In June

The average inflation rate increased to 6.3 percent in H1’2022, compared to 5.9 percent in H1’2021, attributable to 13.8 and 7.1 percent year-on-year increases in food and oil prices, respectively, in H1’2022.

Notably, the price of super petrol, diesel, and kerosene have increased by 22.7, 26.6, and 23.6 percent to 159.2 shillings per liter, Kshs 140.0 per liter, and 127.9, from 129.7 shillings per liter, 110.6 per liter and 103.5 per liter, year to date.

Inflation for the month of June 2022 came in at 7.9 percent, the highest since August 2017, and an increase from the 7.1 percent recorded in May, attributable to a 1.2, 1.5, and 0.9 percent increase in the food and non-alcoholic beverages index, household and equipment as well as the transport index.

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The June 2022 y/y inflation rate is the highest since August 2017.

For the first time in five years, Kenya’s inflation has surpassed the government’s target range of 2.5 – 7.5 percent, despite efforts by the Monetary Policy Committee (MPC) to contain the rise by raising the Central Bank Rate (CBR) to 7.5 percent.

The increase is largely attributable to the increase in food and fuel prices amid supply chain constraints coupled with a depreciating currency.

This comes at a time when the government expected a USD 244.0 mn (Kshs 28.8 bn) approval from the International Monetary Fund (IMF) under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) arrangement whose one of the requirements is that inflation remains within the government range.

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Going forward, we expect inflationary pressures to remain elevated on the back of rising fuel prices and consequently an increase in the rise of basic commodities given that fuel is a major input in most sectors.

Additionally, the National Treasury has indicated that the fuel subsidy under the Petroleum Development Fund is inefficient and is likely to adjust the fuel prices upwards with a view to eliminating the fuel subsidy in the FY’2022/2023.