Monetary Policy Committee unmoved by inflation drop in September

Headline inflation stood at 2.7 per cent in the year to September, down from 3.5 per cent in the previous month. The main contributor to the decline was core consumer price inflation, which fell for the eighth consecutive month to 2.4 per cent, down from 3.3 per cent in the year to August.

The core inflation measure is preferred by policymakers because it strips out volatile food and energy prices. Since the index is well below the central bank’s five per cent target, the Monetary Policy Committee, which meets in October, is expected to maintain caution towards its current expansionary policy in line with its traditionally conservative approach.

Despite the sluggish growth of bank lending, it is likely to keep the current policy rate at 9.5 per cent and argue that its August decision is still feeding through the economy.

UBOS said the drop in yearly core inflation was a consequence of a moderation in other goods inflation, specifically the prices of rice, mukene, sugar, and maize flour, as well as a decrease in services inflation due to a fall in the prices of restaurants and accommodation services in the year to September.

In addition, food crops and related items inflation reduced to 7.9 per cent in the year to September, compared to 9.8 per cent in August.

The inflation rate for energy, fuel, and utilities over the year reduced by 1.2 per cent, compared to the 2.7 per cent drop seen in August, indicating that the decline in the price of liquid energy fuels is slowing down.

The monthly inflation rate increased to an eleven-month high of 0.7 per cent, primarily driven by food crop and related item prices, which grew by 3.8 per cent as compared to 3.6 per cent the previous month.

Core consumer prices rose for the second straight month, up from 0.2 per cent in August to 0.3 per cent.

In addition, the energy, fuel, and utilities index increased at a quicker pace, reaching 1.7 per cent growth, in comparison to 1.1 per cent the previous month.