Kenyan Inflation Slows to 11-Month Low on Fuel Subsidies, Food

(Bloomberg) -- Kenyan inflation slowed to an 11-month low in December, tamed by easing food costs and the government tapping a fuel-stabilization fund to subsidize pump prices.

The annual inflation rate in East Africa's largest economy fell to 5.7%, from 5.8% in November, Nairobi-based Kenya National Bureau of Statistics said Friday in an emailed statement. That matched the median of four economists' estimates in a Bloomberg survey. Prices rose 0.9% in the month.

The food and non-alcoholic drinks index, which comprises a third of the inflation basket, rose 9% from a year earlier, compared with a 9.9% increase in November. The cost of items such as onions and bread drove up the food index. The transport index climbed 8.1% in December, the same as the previous month, as gasoline and diesel prices remained steady due to the subsidies.

Key Insights

Ebbing inflation, which remains within the Central Bank of Kenya's target range of 2.5% to 7.5%, will give rate-setters leeway to hold the key interest rate to prop up the economy when they meet next month.
Upside risks to inflation include a drought in the north of the country and desert locusts that could impact food production. To lessen the impact, the government earlier this week granted tariff exemptions on non-genetically modified livestock-feed ingredients.
A weaker shilling and rising oil prices could also weigh on inflation if the government decides to scrap fuel subsidies that have kept gasoline costs artificially stable since November and led to them being cut in October.