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Global economists lower Kenya’s inflation outlook
The subdued growth in borrowing is reflected in slowed demand for goods and services as suggested by findings of the Stanbic Kenya Purchasing Managers Index (PMI) for May.
Analysts working with select global institutions have lowered the inflation outlook for Kenya, citing slower growth in private sector spending which they see neutralising price pressures emanating from projected weaker agricultural harvests.
Kenya’s inflation— a measure of growth in the average cost of goods and services over the previous year — has held below 5 percent since June 2024.
That has marked the longest period that annual price increases have remained below the midpoint of the government’s 2.5-7.5 percent target in at least a couple of decades, supported by relatively stable food and energy costs.
A consensus report from 13 of the world’s leading banks, consultancies, and think-tank suggests the rate at which prices of goods and services increase is likely to be slower than anticipated at the beginning of the year.
The consensus outlook from firms such as Goldman Sachs, JPMorgan, Oxford Economics, Fitch Ratings, and London’s Standard Chartered Bank suggest Kenya’s inflation will likely average 4.4 percent this year compared with 4.7 percent in January.
This is based on feedback from panelists polled by analysts at Barcelona-based FocusEconomics, a global provider of macro-economic data.
“Inflation is seen averaging near 2024’s level this year, as slower private spending growth offsets the effects of interest rate cuts, tax hikes, and a weaker harvest. Food and energy shortages are an upside risk,” the firm’s analysts wrote in July’s FocusEconomics Consensus Forecast - Sub-Saharan Africa report.
The Central Bank of Kenya’s Monetary Policy Committee has since last August cut benchmark interest rates by 3.25 percentage points to 9.75 percent on June 10, signaling banks to lower the cost of loans and stimulate borrowing by businesses and households.
Lenders have lowered average lending rate from recent peaks of 17.22 percent last November to 15.44 percent in May, but credit flow to the private sector remains depressed.
Banks’ lending to the private sector in May, for instance, grew a modest 2.0 percent compared with the prior year, according to the Central Bank of Kenya.
The subdued growth in borrowing is reflected in slowed demand for goods and services as suggested by findings of the Stanbic Kenya Purchasing Managers Index (PMI) for May.
“Consumers remain hesitant to spend due to concerns about their economic state and the dim outlook,” Stanbic economist Christopher Legilisho wrote in the PMI report for May.
“For pricing, the survey showed a softer increase in output prices, and a moderate increase in input prices, especially in the manufacturing sub-sector. Increases in materials prices were related to tax and customs obligations.”
The analysts reckon subdued spending by businesses will help slow down growth in average prices for goods and services, helping keep the average rate of inflation largely steady compared with last year.
In the latest FocusEconomics Consensus Forecast, UK’s Capital Economics sees inflation averaging 3.5 percent from 5.2 percent in February, Citigroup Global Markets (4.3 percent from 5.0 percent), Economist Intelligence Unit (4.5 percent from 5.0 percent), Euromonitor International of UK (4.4 percent from 4.8 percent) and Oxford Economics (4.6 percent from 4.7 percent).
Washington-headquartered consultancy FrontierView, London’s Standard Chartered Bank, and Fitch Ratings have left their inflation outlook unchanged at 5.2, 4.7, and 4.1 percent, respectively.
However, analysts at Goldman Sachs have raised their inflation outlook to 4.6 percent from 4.1 percent, JPMorgan (4.1 percent from 3.8 percent), Fitch Solutions (4.4 percent from 4.1 percent), Allianz of Germany (4.5 percent from 4.3 percent) and Moody’s Analytics (4.4 from 4.3 percent).
“Price pressures for food and non-alcoholic beverages—which make up a third of the inflation basket—eased; the government released corn from its strategic grain reserve in late May, which should further contain inflation ahead,” analysts at FocusEconomics wrote regarding reduction in inflation to 3.75 percent from 4.11 percent a month earlier.
“Meanwhile, cost rises for transport and housing were unchanged from April to May. Lower oil prices and subdued domestic demand plus higher FX [foreign exchange] reserves bolstering the currency further likely depressed price growth.”
