Inflation For January Likely to Increase Above 6.5 Recorded in December

Economists are projecting inflation for the month of January to rise slightly to the range of 6.5 – 6.7 percent, from 6.4 percent that was recorded during the month of December 2016 driven by a rise in food prices caused by the ongoing drought, and an increase in fuel prices, which have been pushing up the cost of energy.

In as much as upward inflationary pressures are expected to persist, economists expect inflation to be within the government target annual range of 2.5 – 7.5 percent. An upward inflationary pressure is likely to be witnessed from:

• the food component of the CPI basket due to the persistent dry weather expected to carry on for the first half of the year.
• global recovery of oil prices spurring cost-push inflation,
• the weakening shilling due to global strengthening of the dollar increasing the cost of imports thus importing inflation.

The Kenya Shilling remained steady during the week to close at 103.9 shillings the same rate as recorded the previous week, on account of the CBK intervention with the forex reserves declining by USD 91.0 million to support the shilling to counter pressure from the global dollar strengthening.

On a year to date basis, the shilling has depreciated against the dollar by 1.3 percent. In recent months, the forex reserves have reduced to USD 6.9 billion (equivalent to 4.5 months of import cover), from USD 7.8 billion in October 2016 (equivalent to 5.2 months of import cover).

According to Cytonn Investments, if the reserve levels drop too low, the government can access the IMF credit facility, comprised of a USD 989.8 million 24-month Stand-By Agreement (SBA) and USD 494.9 million 24-month Stand-By Credit Facility (SCF), bringing the combined facility to USD 1.5 billion.

The cost of leaving in Kenya is rising with the prices of foodstuffs being out of reach for many households in Kenya.