Kenya’s overall inflation declined to 3.6 percent in September 2024 from 4.4 percent in August, thereby remaining well below the mid-point of the target range.
Inflation is a gradual loss of purchasing power that is reflected in a broad rise in prices for goods and services over time and the rate is calculated as the average price increase of a basket of selected goods and services over one year.
According to the Central Bank of Kenya (CBK) Monetary Policy Committee (MPC) the overall inflation is expected to remain below the mid-point of the target range in the near term, supported by lower food Inflation owing to improved supply from the ongoing harvests, a stable exchange rate, and stable fuel prices.
In a virtual meeting today, the committee met to review the outcomes of the previous decisions and measures implemented to anchor inflationary expectations and maintain exchange rate stability.
Dr. Kamau Thugge, Chairman, Monetary Policy Committee (MPC) explained that Food inflation declined to 5.1 percent in September from 5.3 percent in August, mainly reflecting lower vegetable prices.
“Inflation attributed to declines in prices of key items including tomatoes, cabbages, onions, and potatoes”, he said.
The Fuel inflation, the chairman added declined to 1.1 percent in September from 4.7 percent in August, mainly due to lower electricity and pump prices while Non-food non-fuel (NFNF) inflation eased to 3.4 percent in September from 3.5 percent in August, reflecting the lagged effects of previous monetary policy tightening.
The recently released GDP data for the second quarter of 2024, Thugge who is also the Central Bank Governor said a slowdown in the performance of the Kenyan economy, with real GDP growing by 4.6 percent compared to 5.6 percent in the second quarter of 2023.
This slowdown, he added, mainly reflected deceleration in growth in most sectors of the economy and therefore the projected growth of the economy in 2024 has been revised to 5.1 percent from 5.4 percent.
“The resilience of key service sectors, robust performance in agriculture and improved exports are expected to continue supporting growth but the outlook is subject to risks including the escalation of geopolitical tensions,” Thugge said.
According to the MPC, the September 2024 Agriculture Sector Survey shows that majority of respondents expect inflation to either remain unchanged or decrease in the next three months, on account of improved food supply with the ongoing harvests, the stable exchange rate, and reductions in pump prices
Nevertheless, Governor Thugge noted that some respondents expect moderate upward pressure on prices of most fresh vegetables from October on account of seasonal factors mainly relating to dry weather conditions in most parts of the country.
The CEOs Survey and Market Perceptions Survey which were conducted ahead of the MPC meeting the chairman explained revealed sustained optimism about business activity and economic growth prospects for the next 12 months.
The optimism, he added, was attributed to the stable macroeconomic environment reflected in the low inflation rate and stability in the exchange rate, expectations of a decline in interest rates, continued strong performance of agriculture, resilience of the services sector, and improved global growth prospects.
“The respondents however expressed concerns about high cost of doing business, subdued consumer demand, and high cost of credit,” the chairman said.
The MPC noted the sharp slowing in credit to the private sector, and the slowdown in growth in the second quarter of 2024, and concluded that there was scope for a further easing of the monetary policy stance to support economic activity, while ensuring exchange rate stability.
Due to this, the Committee has decided to lower the Central Bank Rate (CBR) to 12.00 percent and promised to closely monitor the impact of the policy measures as well as developments in the global and domestic economy and stands ready to take further action as necessary.
By Wangari Ndirangu
