20 January 2014

Kenya's Inflation to Hit 10 Percent - Experts

Nairobi — An investment advisor is projecting that Kenya's inflation rate will go up in the first half of 2014 and peak around 10 percent by June. PineBridge Investment Limited Investment Manager Joel Warutere pegged his prediction on both internal and external factors including high cost of food items, high oil prices and the continued impact implementation of Value Added Tax (VAT) Act.

He said the rising trend expected to begin in the first quarter all the way to June this year, will however start dropping and remain stable towards the end of the year. "Any rise in the cost of living normally impacts the lower income group, who are the majority class," Warutere said.

Inflation in the better part of 2013 remained modest underpinned by relatively stable energy prices and moderation in food inflation. "As at December, headline inflation closed around 7.15 percent compared to its September close of 8.29 percent. In December, electricity costs declined significantly due to waiving of inflation levy and reduction of forex adjustment costs," Warutere said.

Kenya's inflation hit single digit in July 2012 at 7.74 percent after 17 months in the double-digit zone where it had hit a high of 19.72 percent in 2011, then going to a low of 3.25 percent in November 2012. "Looking forward, key developments that may impact the trend of inflation will most certainly be in the energy sector with the coming online of the geothermal power plants - Olkaria I and IV - in July this year. This will see the reduction in the cost of power," he said.

Meanwhile, expectations on economic growth remain high with the forecast ranging between 5.6 to 5.8 percent this year. PineBridge Managing Director and CEO Jonathan Stichbury said one of the key driving factors of Kenya's economic resurgence has not only been on stability on inflation but also the currency.

"Looking forward, the Kenya shilling outlook is a story of two halves; the shilling is expected to remain strong in the 1st half of 2014, operating in the 85 to 86 range, while in the second half to weaken up to the lows of 89 against the US Dollar," Stichbury noted. On the other hand, the report shows that there will be further decline in interest rates which should lead to bank lending and more corporate debt issuance.

Last week, the Central bank of Kenya retained its lending rates at 8.5 percent citing more stability in the economy.

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