Inflation is a key macroeconomic indicator of how fast prices are rising in an economy, and it affects decisions made by households, businesses and government institutions.
For central banks, it acts as a guide aimed at ensuring price stability. In Kenya, the Central Bank of Kenya (CBK) aims to keep inflation around 5%, with a small range of flexibility (+/- 2.5%). As the country shifts to a more structured way of managing inflation, distinguishing between the two types of inflation (core and non-core) has become increasingly important.
Core inflation looks at the general trend of price increases by leaving out goods and services with highly volatile prices, such as fresh food, fuel, and transport services. These more unstable items, which are affected by factors like weather or changes in global oil prices, are grouped under what is called non-core inflation. Core inflation is seen as a more reliable indicator because it focuses on more stable prices, giving a clearer picture of long-term inflation pressures and helps guide better policy decisions.
In the past, Kenya used what is known as the Non-Food Non-Fuel (NFNF) measure to estimate core inflation. However, as the CBK updated how it manages inflation, keeping in step with international standards and the East African Community’s (EAC) regional guidelines, it became clear that a more official and detailed measure was needed. Starting in January 2025, the Kenya National Bureau of Statistics (KNBS) began regularly publishing both core and non-core inflation figures.
The change brings Kenya in line with EAC expectations and makes it easier for the public and policymakers to understand inflation trends. It also allows the CBK to tell apart short-term price shocks from deeper, ongoing trends, helping them to respond more effectively.
There are 3 main ways to measure core inflation:
- •Exclusion method: This is the method that Kenya currently uses. It leaves out items like food and energy, which often have sharp swings. This makes the results more stable, but it can sometimes miss useful information if excluded items behave unusually.
- •Statistical methods: These include techniques like the trimmed mean and weighted median. They aim to smooth out the effects of sudden price spikes or drops. While more objective, these methods can be complicated and may be hard to explain clearly to the public.
- •Model-based methods: These use complex models to identify common patterns in price changes. They’re mostly used in developed countries like the U.S and Canada, since they require advanced data and technical skills that many developing countries are still building.
Kenya’s move to official core and non-core inflation measures is a big step forward. As the country improves how it manages inflation and strengthens ties with the regional economy, having accurate and easy-to-understand inflation data will be critical.
Core inflation, in particular, helps policymakers focus on the long-term trends, communicate more clearly, and build public trust in their economic decisions.
