Food, fuel price falls ease Kenya inflation

Falling food and fuel prices helped bring down Kenya's year-on-year inflation rate more than expected in June, easing pressure on the central bank to keep its monetary policy tight.Kenyan consumer prices fell 0.77 percent in June, pushing the year-on-year rate to 10.05 percent from 12.22 percent in May, its lowest level since March 2011, data showed.

The consensus forecast in a Reuters survey of 11 analysts was for the rate in east Africa's largest economy to slow to 11.50 percent. "Whilst the CBS (Central Bank of Kenya) was reluctant to cut rates earlier - they focused on the strength of credit demand in April, and the turn in core inflation - we feel they should be somewhat more reassured by this outcome," said Razia Khan, head of Africa research at Standard Chartered bank.

"Inflation is more definitively on a downtrend, and with the gap between the central bank rate (18 percent) and inflation (10 percent and falling), we think there is an even stronger case to start the easing cycle now." The Kenya National Bureau of Statistics said food and non-alcoholic prices fell 1.91 percent in June, while housing, water, electricity, gas and other fuel costs slipped 0.20 percent.

On a year-on-year basis, the food and non-alcoholic beverages index, which makes up 36.04 percent of the total basket of goods and services used to measure inflation, rose 10.53 percent compared with a rise of 14.58 percent in May.

In June last year, the price of food and non-alcoholic drinks rose 22.52 percent year-on-year. "While this is the most volatile category in the CPI, we now have stronger indications that food prices are finally coming down after the sharp increases over the past year," said Mark Bohlund, senior economist for sub-Saharan Africa at IHS Global Insight.

"However, price growth in non-food prices was also slightly lower than our forecast for a 0.4 percent month-on-month expansion." However, some economic analysts said the fall in inflation was still insufficient to push the Monetary Policy Committee to cut rates at the next meeting on July 10. "While these data are encouraging, on their own they are unlikely to be sufficient to tilt the MPC into a cut at the next meeting," Leon Myburgh, sub-Saharan Africa strategist at Citibank.