Kenya adopts core inflation data to guide monetary policy
CBK Governor Dr. Kamau Thugge (left) and the Kenya National Bureau of Statistics Director General, Dr. Macdonald Obudho, during the launch of a new system of publishing both core and non- core inflation measures at the Treasury Building this week.
The Kenya National Bureau of Statistics (KNBS) will start publishing core inflation data to help monetary policymakers to predict with better precision the impact of key lending rate decisions on the economy.
Core inflation is a measure of inflation that excludes prices of highly volatile commodity items in the Consumer Price Index (CPI) basket. In Kenya, this is a pool of roughly 13 broad categories of consumer products.
Related
Tax inflation: who ate your salary?
CBK cuts key rate to stem the tide of loan defaults
On Tuesday this week, KNBS explained that it has been focusing on headline inflation in its monthly updates, including volatile components such as food and fuel, in turn forcing the Central Bank of Kenya to disaggregate the data and work out the non-food and non-fuel inflation.
The CBK implements monetary policy with the aim of achieving a medium-term inflation target of 5 percent inflation, with an allowance of ± 2.5 percent deviation in the short term. Price stability plays a crucial role in promoting long-term planning, investment and economic growth.
"It (core inflation) is a more reliable measure of inflation commonly used by central banks to inform monetary policy decisions and communication with the public," the KNBS said.
"It has become imperative to have an official comprehensive measure of core inflation for Kenya."
According to KNBS, core inflation will see the agency remove most or all the products that are volatile or transient from the overall index since they cause distortions to the overall index. By removing such products from the index, it is argued that the remaining, less volatile index, better demonstrates the fundamental changes in the rate of inflation.
The statistics agency added that the new model will be in sync with East Africa Community Partner States of Uganda, Rwanda and Tanzania, and advanced economies including the US, UK, Canada and Euro area, as well as inflation targeting emerging economies such as Indonesia and Malaysia that publish various measures of core inflation.
According to policymakers it is challenging for an economy to attain price stability using monetary tools particularly when the food and fuel components of inflation are included since they ride on other factors beyong their control such as weather conditions.
