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Kenya's overall inflation rate surges to 7.3 pct in May

30 May 2014, 16:41

Nairobi - Kenya's overall monthly inflation rose to 7.3 percent in May from 6.4 percent in the previous month due to an increase in the cost of energy and some food items, the statistics bureau said on Friday.

The Kenya National Bureau of Statistics said the Consumer Price Index (CPI) computed using the geometric mean approach increased by 1.01 percent from 148.2 in April to 149.7 in May.

"During the review period, Food and Non-Alcoholic Drinks' Index increased by 1.25 percent. There were significant rises in the prices of several food items including maize flour, potatoes and sukuma wiki (kales) among other food items," the bureau said.

These prices increases, it said, outweighed falls in the prices of sugar, milk and a few the items thereby resulting in an aggregate rise in the food index.

Due to higher costs of common cooking fuels, the Housing, Water, Electricity, Gas and Other Fuels' Index, increased by 1.76 percent between April and May.

"In this regard, price increases were recorded in respect of electricity, charcoal and firewood. The cost of electricity in consumption increased mainly on account of fuel cost adjustment which rose from 0.599 shillings in April to 722 cents per KWh in May," KNBS said.

"For example, the cost of 50 KWh of electricity increased by 21. 71 percent mainly due to this fuel cost adjustment."

The bureau said the Transport Index increased by 1.43 percent mainly as a result of high costs of diesel, petrol and bus fares.

According to Standard Chrered Bank's Regional Head of Research for Africa, Razia Khan, the May inflation most likely signals the start of a new interest rate cycle in Kenya, although he does not expect interest rates to rise anywhere near as much as they did in the last tightening cycle.

"A sufficiently early rate hike will help moderate the overall pace of tightening that is required," Khan said on Friday.

He said unseasonably dry weather in Kenya, and the country's continued reliance on rain-fed agriculture, are helping to pressure prices.

"However, with indicators pointing to robust underlying momentum in the economy, and strong credit growth (notwithstanding recent security risks), the likelihood of food-related pressures spilling over into secondary effects is high," Khan added.

The move comes as the government will next month start reviewing how formula Gross Domestic Product (GDP) is measured in order to improve decision making.

The formula which is referred to as rebasing would see the GDP expand by 20 percent, making Kenya a middle-income economy by next month.

KNSB said the government is set to revise calculations of the size and composition of the economy in a "rebasing" exercise to be done in June. GDP rebasing typically involves changing the year from which values are compared.

The bureau said the revision of the economic indicators requires a wide range of datasets that should be analyzed in a coherent, consistent and integrated approach in order to achieve the overall goal of improved economic statistics.

Economic experts said the current GDP, which was rebased in 2001, does not factor in the invention of the Internet, the coming of mobile phones and mobile money transfer services.

- Xinhua

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