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Inflation Slows Again in Kenya & Uganda

Today's key releases showed that inflation fell in both Kenya and Uganda during July.

The annual pace of consumer prices rises in Kenya slowed to 7.47% y/y from 9.21% in June. The slowdown reflected a fall in food price inflation which eased from 15.81% to 12.12% as the effects of last year's drought, which weighed heavily on agricultural production, continue to fade. Despite a Q1 dip in GDP growth to 4.7% y/y, the slowdown in inflation, after last week's decision by the central bank to maintain the policy rate at 10.0% and delay the report on the interest rate cap until after the August 8 election, will provide a boost to the incumbent Jubilee government. With the headline rate expected to fall further over the months ahead, the odds are rising that the CBK will cut the policy rate at its next meeting on 18 September. The Nairobi All-Share ended the day up by 0.11% while the Kenyan Shilling gave up 0.05% against the US Dollar.

A slowdown in food price growth also underpinned the decline in headline inflation in Uganda which eased to 5.7% y/y from 6.4% in June. This was the lowest rate since last December. Core inflation, which strips out food and energy costs, also dipped for the second consecutive month in July to 4.7%, The broad-based softening of inflation broadly lines up with the Bank of Uganda's expectations at the time of its last policy announcement on June 19 when it cut the policy rate by 100bps to 10%. Given the ongoing signs of disinflationary momentum and the UGX stabilising over the last month at around 3600, another 100bps cut in the policy rate during Q3 looks likely. However, in our view the BoU should pause and assess the impact of its recent bout of easing, which has seen the key policy clipped by 700bps since March 2016. The Ugandan Shilling lost 0.19% against the US Dollar to close at 3605 while the Uganda All Share index gained 0.57%.

South Africa's annual private sector credit growth slowed to 6.16% in June from 6.69% in May. However, the authorities will be reassured by the fact that the Q2 average rate has picked up relative to Q1 which suggests that the recessionary headwinds may be easing. The trade surplus rose to ZAR 10.7bn from 7.2bn in May. Both imports (-4.2% m/m) and exports (-0.6% m/m) declined. The former reflected falls in mineral products, machinery and electronics and textiles. The Rand dipped by 1.27% against the USD to close at 13.17. The JSE All Share climbed by 0.59%.

Nigeria's FX reserves rose from 26bn USD in December 2016 to nearly $30bn in February this year and have hovered around this mark up to June. The Central Bank of Nigeria reported that this stability remained intact in July with an increase to 30.74bn from 30.25bn. in the previous month. USDNGN closed at 349.60. and the NSE All Share lost 2.76%.


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