Latest statistics show that inflation for the month of July went down to 7.74%. This was a sudden fall that was not anticipated by anybody in our economy; not even the policy makers themselves. Falling from 10.05% for the month of June, the 2.31% drop was a wide margin by all standards, catching most of us with surprise. The fall went below what the CBK termed as a fair rate for our economy at 9%.
Inflation rates have been going down since the beginning of the year and the trend is expected to keep up going forward. The falling consumer prices have in turn seen CBK lower the CBR from 18% where it had been maintained for quiet a long time, to 16.5%. With the July fall in inflation being even bigger, CBK will be under new pressure to lower the rate even further.
The Monetary Policy Committee next meeting (5TH September 2012) is eagerly awaited with expectations that they are going to lower the CBR further. This will therefore mean that banks will be forced to follow suit and lower their lending rates to be commensurate with the lower CBR. With costs of money going down, banks lending books may see an upsurge and thus post better results in their second half of this financial year.
However, even as the inflation rate figures seem to be headed south, their true effects is yet to be felt at the grassroots level; since most consumer prices still remain constant or have just changed with negligible margins.
This then calls for better economic development strategies which ensure that any change in economic indicator figures is reflected by a proportionate change in the real life of the mwananchi back in the rural area. But as for now, the 7.74% inflation rate is good news to us all Kenyans.