Inflation up again as CBK retains rates

Consumers continued to dig deeper in their pockets as inflation accelerated for the ninth straight month in July to 15.53 per cent from 14.49 per cent in June.

The announcement happened even as the Central Bank Monday justified its decision to retain Central Bank Rates at 6.25 per cent for the next two months against a sentiment by some economists who say lower the rates would calm down the inflation.

The Kenya National Bureau of Statistics attributed the increase in inflation on the surging food and fuel prices that had ripple effect of increasing transport and overall production costs.

However, the Central Bank Governor, Mr Njuguna Ndungu, said the lowering of the rates would not achieve the desired results, adding that July market perception survey and other information indicated strong growth in the economy.

“The Monetary Policy Committee observed that at the moment, and for the next few weeks, further tightening of the monetary policy stance would not achieve desired results if the supply side of food, fuel and energy were not signalling relief to the constraints fuelling inflationary expectations,” he said

He said power rationing targeting manufacturing firms that started last week would create a further drag on economic recovery and supply of goods and services.

Food and non alcoholic drinks’ index increased by 1.71 per cent between June and July 2011, attributed to cost increases recorded in respect of maize flour, maize grain, sugar and rice.

The governor said the problem was not on availability of food, but its distribution, with parts of Rift Valley and Central having abundant food supplies.

Despite this, KNBS said the average price of a 2kg packet of sifted maize flour increased from Sh130 in June to Sh136 in July. Sugar prices surged by 19.43 per cent from an average of Sh102.95 per cent per kilogramme recorded in June to Sh122.38 in July.

Housing, water, electricity, gas and other fuels’ index went up by 0.85 per cent during the period under review, mainly due to slow but continued increases in house rents and cooking fuels.

However, between the two months, there were notable falls in the prices of potatoes, onions, sukuma wiki, cabbages and carrots by between 1.3 per cent to 6.62 percent, giving relief to consumers.

Last week, the CBK’s Monetary Policy Committee left the benchmark interest rate unchanged at 6.25 percent at its last meeting on July 27, following two consecutive increases, saying tighter monetary policy would not reduce supply side price pressures. Food costs are rising because of a regional drought, while higher oil prices are pushing up transport costs.