NAIROBI, Kenya — Kenya’s inflation rate could rise to about 8 per cent if global crude oil prices average $110 per barrel amid a prolonged conflict in the Middle East, Central Bank of Kenya (CBK) Governor Kamau Thugge has warned.
Speaking during a post-Monetary Policy Committee (MPC) briefing, Thugge said sustained high oil prices would push inflation slightly above the government’s target range of 2.5 to 7.5 per cent.
“I think if the conflict lasts longer and if oil prices were to go to $110, then it’s possible that the headline inflation would exceed or go above the upper end of our target,” Thugge said.
“Not by very much. We expect maybe it could go up to 8pc. But that is under the circumstances where oil prices average about 110 dollars per barrel.”
CBK baseline remains $90 oil
Thugge said the central bank’s baseline projection assumes that international oil prices will average about $90 per barrel, provided the Middle East conflict does not escalate significantly.
“Our baseline scenario for the oil prices is for them to be at around $90 per barrel,” he said.
The CBK has also assessed scenarios in which crude prices either rise to $110 per barrel or fall to $70 per barrel, with Thugge noting that a decline to $70 remained possible depending on developments in global markets.
“The assumption that we have looked at is where the price rises to $110 and where the price comes down to $70, and of course coming down to $70 is entirely possible,” he said.
Inflation edges higher
Kenya’s annual inflation rate increased slightly to 6.5 per cent in July, up from 6.4 per cent in June, according to the latest consumer price data.
The increase was mainly attributed to higher food prices and electricity costs, adding pressure to household budgets.
A sustained rise in crude oil prices could further increase domestic inflationary pressures because Kenya relies heavily on imported petroleum products. Higher fuel costs can feed through to transport, electricity generation, production and the prices of goods and services.
The potential impact is particularly significant because petroleum prices influence transportation and distribution costs across the economy.
