September 26, 2012 / 11:59 AM / 5 years ago

Kenya inflation seen down for 10th month in row

NAIROBI (Reuters) - Kenya’s inflation is expected to fall for the tenth month in a row in September to 5.40 percent as lower food prices offset upward pressure from a jump in retail fuel prices, a Reuters poll showed on Wednesday.

Respondents said the rate, which has been falling since the end of 2011, giving policymakers room to cut lending rates and shore up economic growth, could be close to bottoming out as the favourable base effects draw to a close.

The poll of 11 analysts forecast the year-on-year rate of inflation would fall to a median estimate of 5.40 percent, down from 6.09 percent in August.

The data is due out on September 28.

“Food disinflation will likely remain pronounced, perhaps even countering any upside pressures that may emanate from increases in fuel prices,” said Phumelele Mbiyo, regional head of research at CFC Stanbic bank.

Kenya’s Energy Regulatory Commission raised the maximum prices of petrol, diesel and kerosene during its monthly review in the middle of this month, citing higher prices of crude oil in global markets.

The lowest forecast was 4.50 percent with one respondent saying inflation had bottomed out and was likely to edge up to 6.15 percent.

Bank of Africa trader Peter Mutuku, who predicted a marginal rise in the rate, attributed the view to a combination of a potential jump in borrowing as rates fall and the higher energy costs.

Others felt the bottom was still at least two months away.

“The inflation rate will be close to its nadir in November when the base effect of 2011 starts to fall off,” said Aly Khan Satchu, an independent analyst and trader.

Inflation peaked last November at just under 20 percent, causing widespread anger and demands that the central bank governor Njuguna Ndung‘u, be sacked for failing to keep macroeconomic fundamentals on an even keel.

But the former academic survived the storm and has since restored his policymaking credentials by maintaining a stable exchange rate this year, amid falling prices.

Authorities were helped this year with good rainfall across the country. Improved food production leads to lower prices, thus helping to cut inflationary pressures.

Food and non-alcoholic beverages carry the largest weight in the basket used to measure inflation at 36.04 percent.

Policymakers embarked on an easing cycle in July, cutting the central bank’s benchmark lending rate by 150 basis points from 18 percent. They followed that up with a record 350 basis points cut earlier this month.

Analysts said it was however too early to start experiencing upward inflationary pressure as a result of the lower lending rates.

“Subdued domestic demand and a stable shilling is likely to ensure that core inflation, excluding food and fuel prices from the headline consumer price index, continues to decline as well,” said CFC Stanbic’s Mbiyo.

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