By John Oyuke
Despite bright prospects for the country's economy, whose growth is expected to hit the six per cent mark, inflation could dampen these hopes.
Analysts are wary of rising food prices due to unfavourable weather patterns and soaring fuel prices, which could put pressure on inflation, and consequently economic growth this year.
Inflation (the rate at which the general level of prices for goods and services is rising) rose to 5.42 per cent year on year in January from 4.51 per cent in December. Rising food prices, rent and school tuition costs, triggered the surge.
Inflation has been rising since October last year when it slid to 3.09 per cent, the lowest since November 2002. Central Bank of Kenya (CBK) aims to contain inflation at five per cent.
Kenya National Bureau of Statistics said food and non-alcoholic drinks' index rose by 0.91 per cent between December last year and January.
Price surges on various food categories were recorded, among them sukuma wiki, milk, maize grain and potatoes.
Housing, water, electricity, gas and other fuels' index went up by 2.21 per cent during the period due to increases in the cost of cooking gas, kerosene and rent.
The Education index rose by 3.31 per cent, mainly due to increased costs of tuition fees for private primary and secondary schools, and for tertiary institutions.
Contain inflation
The Monetary Policy Committee, CBK's top decision making organ cut the Central Bank Rate (CBR) by 25 basis points to 5.75 per cent last month, saying it foresaw no upside risks to inflation.
CBK is putting a brave face despite the possibility of the current drought conditions pushing up the cost of living and threatening food security, in addition to the ballooning international commodity prices.MPC said the overall inflation of 4.5 per cent for December last year was below the target of five per cent and there were no foreseen risks to inflation in the near term.
CBK Governor Prof Njuguna Ndung'u who chairs the Monetary Policy Committee attributed this confidence to the fact that the Government has put adequate measures in place to resolve food distribution challenges.
"Any additional inflationary risk emanating from rising oil prices should be mitigated by economic growth," he said after the meeting.However, analysts are convinced rising international food and fuel prices would put pressure on inflation this year.
The country's inflation fell last year mainly on the back of good food production and low mobile telephone tariffs.
Ms Dipna Shah, an investment analyst with PineBridge Investments says despite buoyant mood in the financial and capital markets of a resurging economy, rising food prices and drought might slow the wheels of growth.
"Unfavourable weather conditions will put pressure on food prices," she said.
The investment firm has pegged economic growth at about six per cent per cent driven by financial services, tourism, construction, manufacturing and government spending.
Non-food inflation could also become vulnerable to global commodity prices, especially oil prices. Renaissance Capital, a leading investment bank, says inflation can only go up from last year's levels.
"Inflation is expected to increase this year, on the back of soaring food prices, but it will remain in the single digit range," the firm said in its "Kenya: 2011 Economic Outlook" report.
Renaissance Capital projects inflation to average 5.9 per cent this year, up from 3.8 per cent last year.
Year on year inflation slowed to 3.09 per cent in October last year, after peaking at 19.5 per cent in November 2008 during the 2008/09 drought. A good harvest mitigated food inflation from late 2008 into last year.
CBK said economic growth in the third quarter of 2010 was 6.1 percent and indications are that this growth momentum can be sustained towards meeting the Government's Vision 2030 growth trajectory.
Source: The Standard | Online Edition
0 comments:
Post a Comment