Based on the chart, which answer best describes CPI numbers in terms of economic conditions

Based on the chart, which answer best describes CPI numbers in terms of economic conditions?

1. Inflation was much too high in 2022, but it is expected to decrease over the next few years and decline too far.
2. Inflation was near a desired level in 2022, but it is expected to decrease over the next few years and decline too far.
3. Inflation was much too high in 2022, but it is expected to decrease over the next few years and move toward a desired level.

The correct answer and explanation is:

Based on the provided information, the statement that best describes Kenya’s Consumer Price Index (CPI) numbers in terms of economic conditions is:

Inflation was much too high in 2022, but it is expected to decrease over the next few years and move toward a desired level.

Explanation:

In 2022, Kenya experienced elevated inflation rates, with the annual average reaching 7.6%, up from 6.1% in 2021. This increase was primarily driven by significant rises in the prices of essential commodities, notably food and non-alcoholic beverages, which saw a year-on-year increase of 13.8%, and the transport index, which rose by 13.0%. These surges were largely attributed to high fuel prices resulting from persistent supply chain constraints, erratic weather conditions affecting agricultural production, and increased costs of agricultural inputs. citeturn0search3

In response to the escalating inflation, the Central Bank of Kenya (CBK) implemented a series of monetary policy adjustments in 2022, raising the Central Bank Rate (CBR) incrementally to anchor inflation expectations and stabilize the economy. citeturn0search3

The tightening of monetary policy, along with other measures, yielded positive results. By September 2024, Kenya’s inflation rate had fallen to 3.6% year-on-year, down from 4.4% in August, placing it well within the government’s target range of 2.5% to 7.5%. This downward trend prompted the Finance Minister to suggest that the central bank consider lowering the lending rate to encourage private sector borrowing and stimulate job creation. citeturn0news12

Looking ahead, the African Development Bank projects that Kenya’s inflation rate will stabilize around desired levels, forecasting a decline to 6.2% in 2024 and 5.5% in 2025. This anticipated decrease is attributed to expected reductions in both food and global inflation. The projections suggest that inflation will remain within the government’s target range, indicating a movement toward a desired and stable economic environment. citeturn0search0

In summary, Kenya’s inflation was notably high in 2022, prompting monetary interventions. These measures have been effective in reducing inflation rates, with current and projected figures aligning with the government’s target range, reflecting a positive trajectory toward economic stability.

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