Kenya’s National Bureau of Statistics (KNBS) has announced that it will start publishing core inflation data. This decision, revealed on Tuesday, aims to provide clearer insights for the country’s monetary authorities, including the Central Bank of Kenya (CBK), to predict more accurately how their interest rate decisions impact the broader economy.
For years, the KNBS has primarily focused on headline inflation in its monthly reports. Headline inflation includes volatile items such as food and fuel, which are heavily influenced by supply-side factors, such as changing weather patterns or global oil prices. These factors can create fluctuations that are difficult for policymakers to manage. To counter this, the Central Bank of Kenya has been tasked with disaggregating the data to isolate non-food and non-fuel inflation often referred to as core inflation.
Core inflation is widely regarded as a more reliable gauge of the underlying trends in price movements, as it excludes the more volatile food and fuel sectors. As a result, it provides a clearer picture of inflationary pressures driven by domestic demand, which is directly influenced by monetary policy. Central banks globally use core inflation to shape their policy decisions, as it allows them to focus on factors that can be controlled, such as interest rates, without being distorted by external factors like droughts or oil price spikes.
The decision to publish official core inflation data reflects Kenya’s growing commitment to improving its monetary policy framework. The KNBS emphasized that this move has become essential for ensuring that policymakers have access to an accurate and comprehensive measure of inflation, one that is more aligned with central banking practices globally. The release of core inflation data will also improve transparency, providing the public with better insights into how price trends are evolving in the economy.
Economists and policymakers have long argued that it is challenging to achieve price stability through monetary tools when the headline inflation figure is heavily influenced by food and fuel costs. These costs are often unpredictable, driven by external factors that are beyond the control of the central bank. By focusing on core inflation, policymakers will have a clearer path to maintaining price stability and ensuring that interest rate decisions are more effectively aligned with long-term economic goals.
This move is expected to strengthen confidence in Kenya’s economic management, making it easier for the CBK to communicate its policy decisions to the public and guide the economy through both domestic and global shocks. With a more reliable measure of inflation, Kenya’s policymakers will be better equipped to make data-driven decisions that support sustainable economic growth.
