KENYA: Inflation continued to taper in August, coming in at 6.7 percent y/y from 7.3 percent in July and significantly lower than the 8.5 percent y/y recorded in August 2022.
On a year-on-year basis, the key components of inflation remained above trend (food and non-alcoholic beverages +7.5 percent, housing, water, electricity, gas and other fuels +7.5 percent and transport +13.1 percent).
We had expected headline inflation to print at 7.1 percent y/y for the period. The downside surprise came from a sharper-than-anticipated slowdown in the food component. While food inflation slowed to 7.5 percent y/y from 8.5 percent in July, on a month-on month basis, the food and non-alcoholic beverage component, which accounts for 32.9 percent of the basket, deflated to -0.5 percent, contrary to our expectation for a 0.5 percent m/m increase. The key reason was that prices of loose maize grain, loose maize flour, fortified maize flour, potatoes and tomatoes decreased by an average of 6.3 percent m/m.
Overall headline inflation declined by 0.1 percent m/m. Most other components remained benign in August, with housing, water, electricity, gas and other fuels moving sideways (0.0 percent m/m), while transport picked up slightly by 0.3 percent m/m. We expect further downward pressure on inflation in the ensuing months and reaffirm our view that we expect the MPC to keep rates unchanged in October.
