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July Inflation Set To Hit 8.1% – Cytonn Report

BY Soko Directory Team · July 25, 2022 10:07 am

KEY POINTS

The retaining of the prices resulted in subsidies of 50.7 shillings on Super Petrol, 53.7 shillings on Diesel, and 53.2 shillings on Kerosene during the month.

KEY TAKEAWAYS

"With fuel being a major contributor to Kenya's headline inflation, we expect the unchanged fuel prices to exert minimal pressure on the inflation basket in the short term," said Cytonn.

“We are projecting the y/y inflation rate for July 2022 to fall within the range of 7.7 -8.1 percent, with a bias towards a slight decline from the 7.9 percent recorded in July,” said Cytonn Investments.

The inflation numbers will be pegged on:

Unchanged fuel prices

Fuel prices for the period 15th July 2022 to 14th August 2022 remained unchanged at 159.1 per liter for Super Petrol, 140.0 shillings per liter for Diesel, and 127.9 shillings per liter for Kerosene, as a result of the fuel subsidy program under the Petroleum Development Levy.

The retaining of the prices resulted in subsidies of 50.7 shillings on Super Petrol, 53.7 shillings on Diesel, and 53.2 shillings on Kerosene during the month.

“With fuel being a major contributor to Kenya’s headline inflation, we expect the unchanged fuel prices to exert minimal pressure on the inflation basket in the short term,” said Cytonn.

Increasing food prices

This was evidenced by the 13.8 percent y/y increase in the prices of food & non-alcoholic beverages as of June 2022 due to increased costs of production.

Food prices increased by 1.2 percent m/m from May 2022 mainly due to increases in the prices of wheat flour, carrots, 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

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 July 2022 due to lower production costs.

“Going forward, we expect the inflation rate to remain elevated on the back of high fuel and food prices. Additionally, the move by the Monetary Policy Committee (MPC) to increase the Central Bank Rate (CBR) by 50.0 bps to 7.5 percent in May 2022, 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 4.8 percent.”

However, concerns remain high about the inflated import bill and widening trade deficit as global fuel prices continue to rise evidenced by increased average landed costs of Super Petrol, Diesel, and Kerosene, which increased by 19.0, 2.2, and 6.8 percent to USD 1,042.9 per cubic meter, USD 1,019.3 per cubic meter, and USD 967.4 in June 2022, from USD 876.1 per cubic meter, USD 997.4 per cubic meter, and USD 905.6 per cubic meter in May 2022 occasioned by supply bottlenecks worsened by the geopolitical tensions arising from the Russia-Ukraine invasion.

“We expect inflationary pressure to remain elevated mainly due to the increased global fuel prices as fuel prices are a substantial input cost in the bulk of Kenya’s sectors such as manufacturing, transport, and energy,” added Cytonn.

Related Content: Inflation Rate Unlikely To Ease After Peaking 5 Years In June

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