We have the tools to deal with inflation, says CBK

By Peter Mburu

The Central Bank of Kenya (CBK) says it will react to tame inflation even as it sounded the alarm over rising pressures due to high prices of critical commodities.

It, however, admitted that its hands were tied in as far as controlling imported inflation, which is driven by global price trends, is concerned.

CBK said it would take policy measures, including constraining domestic demand, to avoid a scenario where prices of commodities continue surging. It added that it has effective tools to tame inflation that’s driven by high fuel and food prices.

“The principal drivers where the inflation is coming from are things that don’t react to monetary policy. That is really the point. No matter how much we change or tighten monetary policy, it won’t affect the imported price of Murban oil. The prices will be passed on to consumers in the usual way. That is the first round effect,” CBK Governor Patrick Njoroge said Wednesday.

Tougher times

Latest figures from the Kenya National Bureau of Statistics (KNBS) showed inflation rose from 6.5 per cent in July to 6.6 per cent in August, with inflation in food rising highest to 10.7 per cent from 9.1 per cent in July, followed by fuel whose inflation was 9.2 per cent by August.

In a statement following the Monetary Policy Committee (MPC) meeting on Tuesday, CBK warned that Kenyans were headed for tougher times. It named high Murban crude oil cost, weather and supply chain bottlenecks as inflation’s main drivers.

“The second round effect is when that item (price of fuel) then leads to an increase in other prices such as transportation and electricity. We can use monetary policy to constrain domestic demand and by so doing, there will be less impact on inflation. It’s demand side management. From a point of view of the economy, it’s the second round effects that we can and intend to react to,” Dr Njoroge said.

The governor spoke in Nairobi in an address following an MPC meeting on Tuesday.

He said that CBK would abide by its mandate to ensure price stability in the economy, indicating that the bank is acting.

The worst case

“If we allow inflation to just surge into the worst case, we would be missing on our mandate. That’s not a scenario that we’re willing to do nothing about.

“There will always be an active scenario, which is when we come in and take policy action to stop inflation from surging,” he said, adding, although some measures would take time, CBK had the tools to handle inflation.

This article originally appeared in Nation.

Photo: Nation Media Group