September Inflation Rate To Hit 9.1%

By Soko Directory Team / Published September 26, 2022 | 10:15 am

KEY POINTS

Fuel prices for the period 15th September 2022 to 14th October 2022 increased by 12.7, 17.9, and 15.7 percent to 179.3 shillings per liter, 165.0 shillings per liter, and 147.9 shillings per liter from 159.1 shillings per liter Kshs 140.0 per liter and Kshs 127.9 per liter for Super Petrol, Diesel and Kerosene, respectively.

KEY TAKEAWAYS

Rates in the Fixed Income market have remained relatively stable due to the relatively ample liquidity in the money market. As it is still early in the financial year, the government is 1.9% ahead of its prorated borrowing target of Kshs 135.8 bn having borrowed Kshs 138.4 bn of the Kshs 581.7 bn borrowing target for the FY’2022/2023.

“We are projecting the y/y inflation rate for September 2022 to fall within the range of 8.7-9.1 percent,” said Cytonn Investments in their latest report.

The key drivers include:

High Fuel Prices – Fuel prices for the period 15th September 2022 to 14th October 2022 increased by 12.7, 17.9, and 15.7 percent to 179.3 shillings per liter, 165.0 shillings per liter, and 147.9 shillings per liter from 159.1 shillings per liter, Kshs 140.0 per liter and Kshs 127.9 per liter for Super Petrol, Diesel and Kerosene, respectively.

The increase was attributable to the partial removal of the fuel subsidy by the government. Notably, this is the highest fuel prices have ever been in Kenya, and given that fuel is a major input to most sectors, we expect the high prices to weigh on the inflation basket in the short term,

Increasing Food Prices – This was evidenced by the 15.3 percent y/y increase in the prices of food & non-alcoholic beverages as of August 2022 due to increased costs of production and erratic weather conditions. Given that the index constitutes 32.9 percent of the inflation basket, we expect the prevailing high food prices to exert pressure on the inflation rate.

Higher Electricity Prices – The price of electricity increased by 15.7% in September 2022 to Kshs 25.3 per kWh from Kshs 21.9 recorded in January 2022, reversing the former President’s directive to cut the cost of electricity by 30.0 percent in order to reduce the cost of living.

This is due to the unsustainable subsidies that were shelved by the new administration, and we expect the move to increase the cost of production and thus increase the prices of commodities.

“Going forward, we expect the inflation rate to remain elevated on the back of high fuel, food, and electricity prices as concerns remain high about the inflated import bill and widening trade deficit,” said Cytonn Investments.

“We expect sustained gradual economic recovery as evidenced by the revenue collections of Kshs 2.0 tn in the FY’2021/2022, equivalent to a 2.8% outperformance. Despite the performance, we believe that the projected budget deficit of 6.2% is relatively ambitious given the downside risks and deteriorating business environment occasioned by high inflationary pressures.”

About Soko Directory Team

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