For me the bd story at least represents more democratic fiscal policy from cbk, he also seems to have taken up the vogue pschology in economics style. Wazungu like it, take position.

The statistics bureau released new stats for inflation. The rate dipped in March to 4%, and was largely expected given the rainfall. Read more:

http://www.knbs.go.ke/

We have so far covered this in previous posts 63, 64. One thing for sure the new CPI has no correlation to the previous CPI (irrespective of the base or calculation) and this can be confirmed by looking at the changes between Feb-09 and Sep-09. If we can use some sort of stock index analogy to view the new inflation series, we can say it is the equivalent of changing the base year to 2010, the no. of constituent counters to 25, the weighting to price weighted (vs equal) and recomposing the index to include stocks that belong to undeveloped sectors...maybe the last 1 wud be okay.

The CBK MPC statement in March mentioned that inflation is no longer significant in the interest rate structure and indeed the current rates are excellent to attract foreign investors and favourable reviews from IMF economists. Low inflation will raise GDP growth rates with current economic projections from IMF at 3% for 2010 against 2% in 2009. It is still important to keep track of inflation as debt productivity (ability to generate GDP from new debt creation) in 2008 and 2009 was low compared to the 2004-2007 period.

The statistics bureau is expected to release inflation figures soon and they are expected to remain low at 4% given falling power costs, etc. A reliable source says that the CBK governor also questions the figures being churned out, in fact it has confused him so much as to make him say that's no longer relevant to the interest rate structure.

But during the last auction several bankers theorized that the T-bill would probably hit bottom at 4.4%. Why that level? It seems rather arbitrary, to say that there's no relationship but then place short term rates just above the rate of inflation.

We are not the only ones that have questioned inflation stats before. Even economists and financial experts in developed market like US are always skeptical of changes in methodology. US Cultural Economist, Ronald R. Cooke, wrote at article "US CPI Inflation Statistics Manipulation and Deception?" in 2007. However, the US situation is different from ours.

"First of all, although the CPI is called a consumer price index, it is NOT a price index. To quote the BLS: “… the CPI focuses on approximating a cost-of-living index not a general price index.” Although originally introduced in 1978 to measure price changes, the CPI was changed to a “buying habits” index during the Clinton Administration. It no longer measures price change. It is not even a good measure of the cost of living."

http://www.marketoracle.co.uk/Article3135.html

May 1 was an important day for most labours in Kenya given the 10% increase they received on their minimum wage. This is good considering annual average inflation is estimated at 7.03% for March 2010 (although looking at the CBK and KNBS website, I haven't a clue whether it's headline or core or whatever). If we focus on the wage bill we take the inflation debate further. Low inflation makes all people happy- better returns for investors, a lower rise in the corporate wage bills, reduced govt budgeted expenditures, etc...

The statistics bureau categorizes the population into different income groups:- Lower, Middle & Upper. The lower income band is a good group to focus on because they comprise the largest population whose income grows slower than the rest. In fact the CIA World Factbook further estimates that the household income growth for the poorest 10% of the Kenyan population is 1.8% versus household income growth of 37.8% for the richest 10% of the Kenyan population.

So have inflationary pressures impacted household incomes? The changes in household incomes according to household surveys between 1957 and 2005 are below:

Year: Lower income band household income

1957: 350
1969: 400
1974: 699
1986: 2,000
1997: 10,000
2005: 23,671

Since 1986 the growth in income has virtually doubled every 10 years, so What will it be in 2015? What caused exponential increase in household incomes for the lower income band? The average % rise in household income is below:

Year: Annual growth in lower band household income

1969: 1%
1974: 12%
1986: 9%
1997: 16%
2005: 11%

Between 1997 and 2005 inflation average annual inflation was ~8% vs 11% growth in household income. Was this 11% y-o-y growth in income due to economic growth? History shows that the period between 1997 and 2005 was not particularly prosperous for the country. Considering the effects the commodity boom has had on inflation since then how fast would incomes have to grow by 2015? Subduing inflation therefore should be the priority for every government and I'd say we're doing a pretty good job.

As soon as they manufactured a new inflation number last yr, I stopped following the announcements. I just follow the rainfall patterns and I can tell if inflation is up or down...