Falling food prices offer little relief from inflation

Inflation is likely to remain in the double-digit zone in the next month even as fresh food and fuel prices fall, market watchers have said.

Analysts at Commercial Bank of Africa, Genghis Capital and Cytonn Investments say the inflation rate in June is likely to fall by less than a percentage point and should remain elevated above the preferred CBK range of five per cent, plus or minus 2.5 percentage points, until the third quarter of the year.

Inflation in May hit a five-year high of 11.71 per cent driven by high cost of food as a result of drought. “While other commodities have remained sticky, the marginal decline in food prices could see inflation moderate this month.

Food accounts for 36.04 per cent in the inflation basket and a slight drop in food prices could potentially reverse the recent trend. We expect inflation to drop to (about) 11.12 per cent this month on this backdrop and higher base effects,” said CBA in the latest weekly fixed income report.

READ: Kenya’s inflation rises to a five-year high of 11.7pc in May

Genghis analyst Churchill Ogutu says in a fixed income note that despite the easing of price pressure on selected food items, maize remains a concern with price likely to remain elevated in coming months due to a fall in production on account of drought and the armyworm infestation.

Although some impact of the government maize flour subsidy is expected on the headline number, it may be limited due to distribution issues and inadequate stock.

Cytonn says the rate of inflation should average above 10 per cent for the year, while CBA forecasts the number will remain above 9.5 per cent through the third quarter of the year.

“We are projecting the inflation rate in the month of June to decline to between 10.7 and 11 per cent…and inflationary pressures to ease in the second half of 2017, and average 10.5 per cent for the year,” it said in a markets summary.

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