Inflation to remain concern in 2017, Stanbic economist

The Kenyan inflation is expected to rise in the first half of the year with high food prices remaining a concern.

An economic outlook report prepared by Stanbic Bank shows that inflation is likely to rise up until April and thereafter ease somewhat till July after which a more durable decline in prices in the final quarter of 2017 is expected.

Food takes up 36 percent of the basket of goods that is used to calculate inflation, making it the main driver of the cost of living.

Stanbic Bank Regional Economist Jibran Qureishi says the epicenter of concern for headline inflation remains food prices after pretty lackluster short rains in the fourth quarter of 2016.

“Headline inflation could get some much needed respite if the long rains are adequate in the key food growing regions. However, we suspect that demand driven inflationary pressures could remain modest in the absence of robust economic activity for the better part of 2017 as private sector credit growth will probably not sprint meaningfully following the implementation of interest rate controls,” Mr Qureishi said.

In December, inflation eased to 6.35 percent from 6.68 percent in November.

However with rain remaining scarce, there are fears of increased costs for Kenyan consumers.

Already the Ministry of Energy has indicated power bills will go up by three percent as electricity production from hydro reduces.

“We expect the electricity bills to insignificantly rise due to the use of diesel based power generation, but this will come down again in March when we expect to receive rains,” Energy Cabinet Secretary Charles Keter said last Friday.

With oil producing nations set on scaling back supply, fuel prices are also expected to rise in the coming months.

Stanbic Bank projects that the economy will grow by 5.4 percent in 2017, down from its initial forecast of 5.8 percent last year.

Mr Qureishi said the slowdown in private sector credit growth could weigh negatively on overall GDP.

“Moreover, average GDP growth in Kenya has historically been lower in election years owing to firms maintaining a more cautious stance. Similar events could transpire in 2017 attributable to election anxiety,” he said.