Kenya’s January Inflation Ticks Up To 3.3%, Driven By Higher Food Prices

KEY POINTS
Within the new core basket, core inflation eased to 2.0% from 2.2% in December, primarily due to the higher base effect in the comparison period.
In January 2025, the overall prices of goods and services increased by 3.3% y/y, slightly up from the 3.0% rise in December 2024.
Within the new core basket, core inflation eased to 2.0% from 2.2% in December, primarily due to the higher base effect in the comparison period. The y/y increase in headline inflation was primarily driven by a faster rise in food prices, particularly due to higher fruit and vegetable costs.
Meanwhile, the transport index experienced slower growth, and the household utilities index contracted, largely due to a significant drop in electricity prices—small-scale electricity costs fell by 19.4% per kilowatt. This helped offset the overall increase in the price of goods and services during the period.
The higher base effect also played a role in moderating electricity price increases, as fuel prices rose, which would typically lead to higher electricity costs.
Non-core inflation, which includes volatile items such as food crops, energy, fuel, utilities, and transport, reached a three-month high of 7.1%, a 119bps increase from the 5.2% recorded in December. Over the next three months, we anticipate annual inflation will remain at its current level, with no significant fluctuations, supported by the elevated fuel and energy prices in the first quarter of 2024.
However, food inflation is expected to remain a key constraint, particularly as fruit and vegetable prices continue to be affected by the previous weather conditions from early last year. Additionally, fuel prices present a risk, as local price adjustments could counteract the benefits of lower international prices.
Fitch Ratings affirmed Kenya’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B-‘ with a Stable Outlook on 31st January 2025. According to Fitch, Kenya’s rating reflects strong medium-term growth prospects and a diversified economy, but it faces challenges from weak governance, high debt servicing costs, and significant external debt. The Stable Outlook indicates expected official creditor support to ease short-term liquidity pressures, despite a projected budget deficit of 4.8% of GDP for FY25.
While socio-political tensions have eased with the withdrawal of controversial tax proposals, risks of unrest remain due to economic difficulties. The government aims to secure substantial funding through domestic and foreign borrowing, but revenue shortfalls and high-interest payments continue to strain finances.
Read Also: Kenya’s October Inflation To Fall Between 3% And 3.3%
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