DROP IN FUEL COSTS LOWERS INFLATION RATES AMONG EAST AFRICAN COUNTRIES

A market in Nyeri county, central Kenya. The country
experienced a drop to 5.53 per cent in January from the
6.02 per cent recorded in December.

Lower costs of fuel have seen the headline inflation rate in the region decrease even though the prices of food items in some countries rose.

Data from the statistics bureaus in the EAC member countries shows that apart from Kenya, Uganda, Rwanda, Burundi and Tanzania recorded below five per cent inflation.

Tanzania had the highest dip in its inflation figures, which dropped by 1.8 percentage points in January from 4.8 per cent in December last year.

In Uganda, the inflation rate decreased to 1.3 per cent in January, from 1.8 per cent in December 2014, while Kenya experienced a drop to 5.53 per cent in January from the 6.02 per cent recorded in December.

Burundi’s inflation fell to 3.8 per cent year-on-year in December from 4.2 per cent in November, while Rwanda’s inflation rate fell to 1.4 per cent in January from 2.1 per cent in December.

A forecast from Business Monitor International notes that inflation in Uganda will rise this year, but stay largely contained, averaging 7.0 per cent year-on-year compared with an expected 6.4 per cent in 2014.

“Headline price growth will continue to be anchored by the relatively favourable outlook for food prices and a subdued external price environment. That said, currency concerns will dictate a wait-and-see approach to monetary policy over the coming months,” the report says.

Ben Paul Mungyereza, executive director of Uganda’s Bureau of Statistics, attributed the drop in the country’s year-on-year inflation to the fall in food prices.

Drop in food crop prices

“The prices of food crops dropped by 6.5 per cent in the year ending January 2015, compared with an earlier deflation of 2.7 per cent recorded in December 2014,” said Mr Mungyereza.

Uganda has seen a drop in food prices, transport costs and fuel. Milk, electricity tariffs, and pharmaceutical products on other hand have increased. However, the cost of Uganda’s fuel has not been at par with its regional neighbours.

Despite Rwanda and Uganda being landlocked, and Rwanda’s fuel passing through Uganda, the latter currently has the most expensive pump figures in the region.

Fuel currently trades at $1.2 per litre for petrol and $1.02 for diesel, a drop of $0.03 from the December 2014 figures.

In its recent economic report, Standard Chartered Bank warned that weaker oil prices would have a mixed impact on Uganda, particularly due to the country’s poor currency performance against the dollar.

Uganda also maintained its Central Bank Rate at 11 per cent to encourage commercial banks to provide low interest loans to the public.

According to the central bank Governor Emmanuel Tumusiime-Mutebile, several developments have affected the medium term inflation outlook in Uganda.

“The sharp depreciation of the shilling that occurred in January, will raise the domestic prices of traded goods but lower global oil prices and domestic food crop prices to the extent that they persist in 2015, dampening inflationary pressures,” Mr Mutebile said.

Tanzania, which has enjoyed a sharp drop in food prices after a good maize and rice harvest saw inflation in 2014 drop from 7.9 per cent to 6.1 per cent. The monthly headline inflation rate for the month of January 2015 has increased by 1.0 percentage attributed to price increase of some food and non-food items.

Tanzania’s annual headline inflation decreased to 4 per cent in January from the 4.8 per cent recorded in December, pushed by a decrease in oil prices.

Ephraim Kwesigabo, director of social statistics at the National Bureau of Statistics, said that energy and food prices were the main drivers of the drop in inflation.

Drop in fuel costs

“It’s clear that the fall in fuel prices has contributed to this drop. We now have annual food inflation at 5 per cent as compared with 5.7 per cent in December,” said Mr Kwesigabo.

Tanzania’s fuel costs have been decreasing since October last year with the Energy and Water Utilities Regulatory Authority capping a litre of petrol at $0.94, a dip of 22 per cent compared with September 2013 price caps.

As in Uganda and Kenya, Tanzania has seen a rise in rental units’ asking prices by 2.4 per cent.

According to Nicolas Ndayishimiye, director-general of Burundis’ Institute of Economic Studies and Statistics (ISTEEBU), the average inflation rate eased sharply to 4.4 per cent in 2014 from 7.9 per cent in 2013, partly due to lower international fuel and food prices.

Kenya’s Energy Regulatory Commission cut the retail prices of petrol, diesel and kerosene by at least 8 per cent after the cost of importing refined products fell.

The Kenya National Bureau of Statistics (KNBS) said in a statement that transport costs fell 1.39 per cent, mainly due to the reductions in the pump prices of petrol and diesel.

Despite the drop, and a decrease in inflation, Kenya’s central bank held its key lending rate at 8.50 per cent last month, saying this action would ensure inflation continued to fall towards the 5 per cent target.

According to John Rwangombwa, the Governor of the National Bank of Rwanda (BNR), the country’s Consumer Price Index (CPI), the main gauge of inflation, rose by 1.4 percentage points year on year in January 2015.

Rwanda’s inflation

“We expect that the low food prices and reducing international fuel prices will keep inflation in check in coming months,” said Mr Rwangombwa.

“We expect that the decline in fuel prices will lower the cost of transporting food from areas of production in the country to marketplaces and also reduce the cost involved in importing the commodity.”

Rwanda has also reduced pump prices to $1.27 a litre from the $1.36 it had capped in December 2014.

The country also capped its key repo rate (KRR) at 6.5 per cent in order to support economic financing in the first quarter of 2015.

“The lowering of the KRR in June last year from 7 per cent to 6.5 per cent has seen the lending rates in most banks decline from an average of 17.5 per cent in June to 16.7 per cent in December 2014,” said Mr Rwangombwa.

The East African