Inflation drops to a near four-month low in July

Inflation edged down to 4.3% in July, edging down from June’s 4.6%. July's result represented the lowest inflation rate since September 2020 and surprised markets on the downside. The figure was primarily driven by a softer increase in transportation prices. A stronger shilling year on year further slowed price growth. Meanwhile, price pressures for housing and utilities accelerated. Accordingly, the trend pointed down slightly, with annual average inflation coming in at 6.0% in July (June: 6.2%). Lastly, consumer prices fell 0.21% in July over the previous month, contrasting June's 0.42% rise. July's result marked the weakest reading since June 2020.

Oxford Economics’ Shani Smit-Lengton commented: “While the government still needs to confirm if it plans to implement some of the taxes in the finance bill, we believe the bill would avoid taxes related to food (33% of the CPI basket) and possibly fuel (10% of the CPI basket). Therefore, core inflation might experience upward pressure if some taxes, such as sin tax, are implemented. Considering all this, we have raised our core inflation forecast, but given the strength of the shilling in Q2, core inflation is starting from a lower base.”

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