Capital Markets
CBK-favoured inflation gauge falls to 7-month low
Monday August 14 2023
Central Bank of Kenya Governor Dr Kamau Thugge at a past event on July 17, 2023. PHOTO | LUCY WANJIRU | NMG
Non-food, non-fuel inflation or core inflation, the Central Bank of Kenya’s favoured gauge for the cost of living, has fallen to a seven-month low of 3.8 percent.
This signals the success from the CBK’s recent monetary policy tightening in late June when it raised the benchmark Central Bank Rate to 10.5 percent from 9.5 percent to contain inflation expectations.
Read: CBK holds the benchmark lending rate on inflation ease
Core inflation declined to its lowest level since October last year, having peaked at a rate of 4.4 percent in March this year.
“This indicates the easing of underlying inflationary pressures attributed to monetary policy measures. There has been a steady increase in non-food non-fuel inflation from January 2022,” said CBK Governor Kamau Thugge.
Monetary policy action is seen to be more effective on core inflation and has been favoured as a more effective measure of inflation by other central banks including the US Federal Reserve.
Core inflation measures changes in the cost of goods and services but does not include those from the food and energy sectors.
Food and energy costs are exempt from core inflation as their prices often tend to be more volatile.
In Kenya for instance, food prices will often increase significantly during drought seasons while the price of fuel will often track international crude prices.
As a result, headline inflation which is inclusive of both food and energy prices cannot be targeted using CBK monetary policy tools.
In June, Dr Thugge said the CBK would primarily keep tabs on core inflation with the goal of managing inflationary pressures.
The apex bank desires to have the core inflation rate under three percent which represents the historical average reading of rate over recent years.
Read: Inflation storms gathering for the CBK
A rise in core inflation implies a spike in the cost of other goods and services outside of food and energy which is seen as secondary effects of high headline inflation.
→ [email protected]
#CBKfavoured #inflation #gauge #falls #7month
