Kenya’s inflation risks remain tilted to the upside in the final quarter of the year, with the possibility of El Niño-related flooding expected to put further pressure on food and transport costs, NCBA Economic Research has warned.
The warning comes after headline inflation rose to 6.8 percent in September from 6.6 percent in August, with food and energy costs emerging as the main drivers of the increase. On a monthly basis, the Consumer Price Index rose by 0.4 percent.
NCBA said the onset of El Niño weather conditions in the fourth quarter could heighten the risk of flooding, disrupting food supplies and transportation and pushing consumer prices higher.
“Into Q4, El Niño weather conditions will heighten risk of flooding which may further raise food and transportation costs,” the bank said.
The warning comes against a backdrop of already elevated food inflation, which accelerated to 9.5 percent in September from 9.0 percent in August. Vegetable prices recorded some of the largest increases, with potatoes rising 33.6 percent, kale 32.5 percent, cabbages 25.8 percent, spinach 23.1 percent and tomatoes 21.1 percent.
Milk prices also increased as dry conditions affected domestic supply. Fresh unpackaged cow milk rose 7.7 percent, while long-life milk increased by 11.9 percent during the month.
NCBA said the inflationary pressure is also spreading through the transport sector as global energy prices remain elevated. Petrol prices rose 15.8 percent year-on-year in September, while diesel prices increased 26.9 percent.
The transport index consequently rose 15.6 percent, reflecting a 20 percent increase in matatu fares and higher international flight costs.
The bank also pointed to rising core inflation as evidence of continued supply-side pressure. Core inflation increased to 4.0 percent in September from 3.4 percent in August, partly due to higher food prices and shortages of beef and milk linked to the dry spell.
NCBA, however, said some of the food supply pressures could prove temporary if anticipated rainfall improves supplies in the near term. Producers are nevertheless expected to continue passing higher energy costs on to consumers.
Beyond weather-related risks, the bank said global geopolitical tensions remain a threat to commodity prices, particularly energy, fertiliser and agricultural products. It cited the Russia-Ukraine and US-Iran conflicts as factors contributing to uncertainty in global commodity markets, while refined diesel supplies remain constrained.
NCBA projects headline inflation could average 7.0 percent in the near term, assuming the fuel subsidy and VAT reduction due to expire in mid-October remain in place.
