1 February 2013

Kenya: Inflation Unlikely to Ease Soon

Nairobi — The overall inflation rate in Kenya is expected to gradually increase in the next few months due to pressure on the shilling largely attributed to the upcoming general election.

According to independent financial analyst Aly Khan Satchu, the slight drop in the value of the shilling may lead to further increase in the food prices and other basic goods especially imported ones.

Speaking to Capital FM Business, Satchu said despite the expected inflation increase in January 2013, the rate may not get to the extremes like it was in 2011 where it hit 19 percent.

On Thursday, the Kenya National Bureau of Statistics (KNBS) announced a slight rise in overall inflation in the month of January to 3.67 percent from 3.20 percent in December last year due to increase in food, housing and transport costs.

"All in all I would say that Central Bank need not be overly concerned because the rate of Inflation remains subdued and within their corridor," Satchu said.

The shilling is expected remain within the 88 to 90 bracket against the dollar in the first half of this year.

On his part, the CEO of Deloitte East Africa Sammy Onyango says the inflation could rise due to the looming elections.

He says the huge amounts of money politicians are pouring into the economy could lead to excess liquidity, chasing few goods and services hence pushing up prices and resulting in the rise that is being witnessed.

"My own feeling is that we are very cagey about the upcoming general election and there is a "wait and see" mood. If we have smooth polls, the growth of the economy, already predicted at 5.6 percent, would move higher, leading to lower prices as production will be on the upswing. However, if the elections are as chaotic as in 2007, then God help us," Onyango told Capital FM Business.

PineBridge senior Investment manager Edward Gitahi says whatever the case; the inflation rate will gradually rise but may not go beyond seven percent by the end of this year.

"One thing I am sure of is that CBK is so keen to see what is happening in the market. It will do anything to ensure things don't go wild. I also think we have learnt from the past, there would be no time to sit and watch while things go wrong," Gitahi said.

He urged the government to invest more on food storage to ensure that the harvests at different seasons within the year are stored.

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