Key questions this article answers:
  1. In August, Kenya’s inflation fell to 6.7% despite the country's VAT doubling to 16%. Why did commodity prices fall?
  2. Will this trend be sustained in subsequent months?

Kenya's inflation rate has displayed a rather unexpected trend over the past few months. The annual inflation rate decreased for the third consecutive month in August, settling at
6.7%, within the target range (5% ± 2.5%) of the Central Bank of Kenya (CBK). Meanwhile, the month-on-month (m-o-m) inflation rate was -0.1% in August, down from 0.1% in July, indicating disinflation.


As we’ll soon see, the ease in food inflation to 7.5% in August from 8.6% in July and the moderation in fuel inflation to 14.2% from 14.5% in July drove August’s disinflationary trend. Also, base effects, the drop in transportation costs, and ease in core inflation (all items less volatile items like food and energy) to 3.7% (vs 3.8% in July) further contributed to inflation falling. For context, food, transport, and fuels hold the largest weight (57% cumulatively) in Kenya’s inflation basket.

Noteworthy is that the declining trend occurred shortly