Kenya’s annual inflation rate has continued its upward trend, rising by 3% in December compared to a 2.8% increase in November. This marks the second consecutive month that inflation has increased, despite the country’s shilling being the world’s best-performing currency against the dollar this year.

Price Growth Remains within Target Range

While the recent hike in prices may seem alarming, it is worth noting that inflation remains within the lower end of the target range of 2.5% to 7.5%. Central bank Governor Kamau Thugge has consistently emphasized the importance of keeping price-growth expectations anchored within this range.

Shilling’s Strength Helps Keep Inflation in Check

One of the key factors contributing to Kenya’s relatively low inflation rate is the strength of its currency, the shilling. The Kenyan unit has gained about 21% against the dollar since the end of 2023, making it the world’s best-performing currency this year. This has led to a significant reduction in import costs for raw materials and finished goods, including fuel.

Food and Transport Costs Push Inflation Up

The consumer price index rose by 0.6% in December, with prices of food and non-alcoholic drinks being the main drivers of inflation. Several items, including cabbages, potatoes, and kale, saw higher prices, contributing to a 0.7% increase in this category.

Here are some specific details on the price increases:

  • Food and Non-Alcoholic Drinks: 0.7%
    • Cabbages: +12.1%
    • Potatoes: +11.4%
    • Kale: +10.3%
  • Housing, Water, Electricity, Gas, and Other Fuels: 0.2%
    • Power prices: +6.5%
  • Transport Index: 1.8%
    • Public-service vehicle fares: +4.2%

Central Bank Cuts Interest Rates to Support Economy

In response to the relatively low inflation rate, the central bank cut its benchmark interest rate for the third time this year in December, lowering it to 11.25% from 12%. This move is aimed at providing support to the East African economy.

Key Takeaways

  • Kenya’s annual inflation rate rose by 3% in December.
  • The shilling’s strength has helped keep import costs low and contributed to relatively low inflation.
  • Food and transport costs were the main drivers of price growth in December.
  • Central bank Governor Kamau Thugge prefers to anchor price-growth expectations within a target range of 2.5% to 7.5%.
  • The central bank cut its benchmark interest rate for the third time this year, lowering it to 11.25%.