Kenya's March Inflation Drops by 5.7% as KES Strengthens Against Dollars

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Kenya's year-on-year inflation rate dipped slightly in March 2024, offering a glimmer of hope. The rate fell to 5.7%, down from 6.3% in February. However, despite this improvement, Kenyans are still grappling with a high cost of living.

The year between March 2023 and March 2024 saw significant price increases in transportation (up 9.7%), housing and utilities (up 8.0%), and food and beverages (up 5.5%). These essential categories make up a substantial portion of household spending, impacting Kenyans' wallets heavily.

However, there was a slight decline in the cost of these commodities in March. This decrease is likely due to a strengthening Kenyan shilling against the US dollar, currently trading at KES 132 to the dollar.

The Kenya National Bureau of Statistics (KNBS) calculates inflation rates and consumer price indices through monthly surveys. These surveys track the cost of goods and services in shops and stores across Kenya. The KNBS selects a representative basket of items typically purchased by Kenyans, and the surveys are conducted in specific regions during the second and third weeks of each month.

In response to inflation, currency depreciation, and global supply chain disruptions, Kenya's central bank (CBK) and other East African central banks are adjusting interest rates to support their struggling economies. This approach suggests a potential shift away from coordinated global efforts to control inflation.

In February 2024, the CBK implemented its largest interest rate hike in 12 years, raising the rate from 12.5% to 13%. This move is intended to curb inflation and stabilize the exchange rate, but it may also lead to higher borrowing costs for Kenyans.

The situation in Kenya highlights the complex challenges faced by East African economies in the current global climate. While the recent dip in inflation offers a sigh of relief, the high cost of living remains a pressing concern. The CBK's interest rate increase is a strategy to address inflation, but it may come with the unintended consequence of making borrowing more expensive.

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