Bloomberg News

Kenya Inflation Soars to 18.9%, Fueling Pressure on Rates

October 28, 2011

(Updates with comment from an analyst in third paragraph.)

Oct. 28 (Bloomberg) -- Kenyan inflation accelerated to 18.9 percent in October after the shilling sank to a record low against the dollar, adding to expectations the central bank will boost interest rates next week.

The inflation rate in East Africa’s biggest economy rose from 17.3 percent in September, the Nairobi-based Kenya National Bureau of Statistics said in an e-mailed statement today. Prices increased 1.6 percent in the month.

“Besides food prices, other components of the consumer price index are showing mounting inflationary pressures,” Phumelele Mbiyo, an economist at Standard Bank Group Ltd. in Nairobi, said in a note to clients today. “The Monetary Policy Committee is likely to raise the central bank rate when it meets on Nov. 1, possibly by 300 basis points.”

The Central Bank of Kenya last month raised its key lending rate by 4 percentage points to a record 11 percent to fight inflation and support the shilling, adding that it may lift the rate further. The MPC will probably increase the rate to 12.75 percent, according to the median estimate of four economists surveyed by Bloomberg.

The worst regional drought in 60 years has damaged crops, pushing up food prices, which increased 1.7 percent in October from the previous month, according to the statistics agency. Transport costs rose 1.5 percent.

A 19 percent decline in the shilling this year has made the currency the world’s worst-performer of more than 170 currencies tracked by Bloomberg. Kenya raised the price of gasoline by 2.3 percent this month as a weaker shilling boosted import costs.

--Editors: Paul Richardson, Nasreen Seria, Karl Maier

To contact the reporters on this story: Johnstone Ole Turana in Nairobi at jturana@bloomberg.net; Sarah McGregor in Nairobi at smcgregor5@bloomberg.net

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net


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