Kenya’s annual inflation declined for the second consecutive month to 18.31 percent in December from 18.93 percent in the November due to falls in food prices, the Kenya National Bureau of Statistics (KNBS) said on Tuesday.

KNBS said the Consumer Price Index (CPI), computed using the geometric mean approach increased by 0.56 percent from 130.09 in December 2011 to 130.82 in January. "Food and Non-Alcoholic drinks’ index rose by 0.58 percent between December 2011 and January. This slight increase was a net effect of both increases and falls in the prices of a number of food products, "the bureau said in a statement issued in Nairobi.

The latest drop comes as the International Monetary Fund (IMF) on Jan. 18 forecast that inflation will decline to 7 percent by 2012/13 from current projection of 16.2 per cent in 2011/12. Economic analysts say the IMF forecast is likely to improve Kenya’s economic image as it prepares to arrange for a syndicated loan of 600 million U.S. dollars from several global banks in the next two weeks. The money is meant to cover the budget deficit.

The government avoided local borrowing to benefit from lower interest rates in Europe and the U.S. and also avoid crowding the private sector here from borrowing.  According to KNBS, the prices of tomatoes, sukuma wiki (kales), potatoes, cabbages and onions rose by 14.97, 13.31, 12.43, 25.26 and 14.19 percent, respectively, over the same period. "On the other hand, the prices of sugar, mangoes, maize flour, rice, green maize and maize grain went down by 13.19, 3.47, 2.35, 4,00 and 1.36 percent, respectively, over the same period,” it said.

The bureau said housing, water, electricity, gas and other fuel index rose by 0.49 percent between December 2011 and January. "Whereas the cost of several house rents recorded increases, notable falls in the prices of electricity and kerosene were recorded over the same period,” the statement said.  The transport index increased by 1.47 percent between December 2011 and January as a result of falls in commuter fares that was attributed to reductions of 4.59 and 1.70 percent respectively in the prices of petrol and diesel.

Kenya switched to the new calculation method in October 2009 which is in line with best practice as recommended by the International Labour Organization and which has been hailed as a true reflection of the current cost of living in the country. The country had been using the arithmetic means, which has been widely criticized, with many arguing it had an upward bias to the computed index. For example, the basket of goods and services consumed by households has also remained unchanged over the years and has been viewed as being vulnerable to erratic price movements in the market.

The data is generated from 13 urban centres in the country and it is believed to be a reflection of the spending behavior among Kenyans. It is collected in the second and third weeks of the month under review in order to maintain consistency in price variations.

Xinhua