An increase in core inflation--the change in the costs of goods and services excluding those from the food and energy sectors—has triggered fresh concerns of pressure on interest rates ahead of Tuesday, when the monetary policy team of the Central Bank of Kenya(CBK) sets its new indicative lending rate.

CBK data shows that core inflation edged up to 3.6 percent in January 2024 from 3.4 percent in December, a three-month high rate.

The re-emergence of pressure on the non-food and non-fuel prices has coincided with the rebound in overall inflation or headline inflation which hit 6.9 percent last month from 6.6 percent in December.

Read: Core inflation jumps to three-year high

The uptick in core inflation mirrors higher prices for general goods and services excluding food and fuel-whose prices are usually considered volatile despite their largely fixed demand.

The rise in core inflation will be a matter of concern for CBK at its policy meeting on Tuesday, with the apex bank favouring the non-food/non-fuel gauge to monitor consumer prices and inform its policy stance.

Globally, monetary policy is seen as more responsive to core inflation by major central banks—a factor that could shape the decision of the CBK policy team on Tuesday.

The CBK on December 5, 2023, made a jumbo raise on its indicative lending rate to 12.50 percent from 10.50 percent. Core inflation has however declined significantly from a previous multi-year high of 4.45 percent in February 2023.

Last month, the International Monetary Fund (IMF) warned of building near-term inflationary pressures from a combination of volatility in global oil prices and pass-through effects of a weaker exchange rate.

The multilateral lender however expected inflation to remain contained by CBK’s previous benchmark lending rate increase from 10.5 to 12.5 percent on December 5, which was mainly aimed at addressing the impact of a weaker exchange rate to consumer prices.

“Inflation is expected to inch up in the first half of 2024, driven primarily by global oil price volatility and exchange rate passthrough, but to remain contained due to the recent monetary policy tightening,” the IMF indicated.

Headline inflation also raced to a three-month high last month as consumers saw higher costs for foodstuffs, school fees, electricity, clothing, and financing.

The rise in consumer prices coincided with the reopening of schools in the 2024 academic calendar which put pressure on household budgets as parents paid school fees and bought education materials including uniforms and footwear.

“The year-on-year inflation for education services, which follows a normal seasonal trend, was 2.8 percent. There was an increase of 1.9 percent in the indices for education services between December 2023 and January 2024, occasioned by a rise in tuition fees,” KNBS Managing Director Macdonald Obudho said.

Electricity prices rose the highest among all product categories with the cost of 200 units of electricity consumed by a household/200 kilowatt-hours averaging to Sh7,477, a 41.1 percent rise from 12 months ago.