Kenya’s inflation dropped to its lowest level in 12 years, signalling a further cut in the central bank rate and offering relief to households and firms plagued with costly bank loans.
Inflation fell to 3.6 percent in September from 4.4 percent a month earlier on easing food, energy and transport expenses, Kenya National Bureau of Statistics (KNBS) data shows.
This is the lowest cost of living measure since December 2012 and keeps inflation within the government targets of between 2.5 percent and 7.5 percent in the medium term.
Treasury Cabinet Secretary John Mbadi yesterday said that the Central Bank of Kenya (CBK) should start lowering its lending rate.
“We think now that the central bank should start lowering the interest rate so that we encourage the private sector to take up more loans, and create job opportunities,” Mr Mbadi told lawmakers on Wednesday.
A series of rises in the central bank’s benchmark lending rate has triggered commercial banks to increase the cost of borrowing, prompting reduced demand for credit needed to support economic growth and mounting loan defaults.
The CBK is due to announce its next interest rate decision on October 8 or next Tuesday when analysts expect further cuts on the benchmark lending rate. It lowered its benchmark lending rate by 25 basis points in August to 12.75 percent, saying there was scope to ease policy gradually as inflation had fallen below the midpoint of its target range.
A drop is expected to trigger a fall in cost of loans for households and firms who have struggled to service costly credit since the CBK started raising rates in June 2022 amid global economic shocks that saw inflation rise to multi-year highs.
Cutting the key lending rate is expected to lower the cost of borrowing as commercial lenders use the rate as a base on which they load their margins and risk profile of individuals when pricing loans.
The resultant drop in the cost of loans is expected to prompt consumers to take up funds for investments and consumption in the coming months, boosting economic activities.
“In the next monetary policy committee meeting, we are expecting at least a 50- basis points (0.5 percent) movement and that would be clear to the market and would be transmitted to borrowers/consumers,” Raimond Molenje, the interim chief executive for Kenya Bankers Association, said late September.
Before cutting the CBR in August, the MPC had raised the rate by 5.5 percentage points since the tightening began in May 2022 through July 2024 to manage inflationary expectations through keeping the cost of borrowing elevated.
This lowers demand-side price pressures by prompting households and businesses to postpone borrowing to fund expenditures that are not urgent or a priority.
KNBS data shows the easing price pressures in September were largely helped by increased production of food and lower costs of fuel and electricity compared with last year.
Average food prices increased 5.1 percent year-on-year in September, but the rise was a marginal 0.4 percent compared with August, the KNBS data shows, benefitting from fairly sufficient rainfall in the past year and lower prices of inputs such as fertiliser.
“Prices of sugar, wheat flour-white, and fresh packeted cow milk decreased by 2.8, 2.1, and 0.6 percent, respectively, between August 2024 and September 2024,” KNBS managing director Macdonald Obudho wrote in a statement Wednesday.
“The housing, water, gas, and other fuels’ index decreased 0.1 percent between August 2024 and September 2024 attributable to decrease in prices of kerosene… and electricity. The Transport index increased by 0.1 percent between August 2024 and September 2024mainly due to increase in prices of city bus fare.”
Sugar prices posted the biggest fall in September, compared with a year earlier, amongst the goods items sampled by the State-run statistician.
A kilogramme of the sweetener averaged Sh153.80, a drop of 29.7 percent compared with Sh218.78 in the prior year on increased production and milling of cane.
The prices of staple maize also fell compared with a year ago, with a kilo of loose grain selling for Sh59.64 on average, a 19.8 percent dip compared with a year ago.
Poor households who rely on kerosene for cooking paid Sh159.10 per litre on average, a 21.8 percent fall from Sh203.34 a year earlier.
Motorists also witnessed a 10.7 percent fall on a litre of petrol at the pump to Sh189.46 on average from Sh212.25 in September 2023. Diesel, consumed in key sectors such as transportation and agriculture, dropped 14.6 percent to Sh172.33.
Considerable price falls were also posted in electricity bills in the review period, with 50 kilowatt-hours setting back households and businesses Sh1,275.05 on average, a modest 2.7 percent drop from Sh1,310 a year ago.
Middle-class households, which consume 200 kWh of power, felt a bigger 10.3 percent fall in bills to Sh5,714.88.
The KNBS data, however, shows the cost of cooking went up, with households spending an average of Sh3,196.04 to fill a 13-kilogramme Liquefied petroleum gas cylinder.
Prices of beef-on-bone, cabbages, and Irish potatoes also jumped by 14.5, 39.5, and 31.2 percent per kilo, respectively, to Sh639.03, Sh78.33, and Sh133.57.
