(Bloomberg) -- Kenya’s inflation rate unexpectedly climbed in May, fueled by soaring sugar prices that outgoing central bank Governor Patrick Njoroge warned may pose a risk to the monetary authority’s expectations that price-growth will ease.

Annual inflation edged further away from the central bank’s 2.5% to 7.5% target range, accelerating to 8%, compared with 7.9% last month, the Kenya National Bureau of Statistics said Wednesday in an emailed statement. The median estimate of six economists in a Bloomberg survey was 7.8%, with forecasts ranging from 7.2% to 8.2%. Prices rose 0.9% in the month.

Njoroge said earlier on Wednesday that the monetary authority sees “a major risk coming from sugar inflation in the numbers to be released today.” The sweetener “is used in many products so there may be second round of effects, sort of like fuel,” he said at a briefing in the Kenyan capital, Nairobi, two days after the central bank left rates unchanged at 9.5%.

The cost of sugar surged 49% in May from a year earlier because of tight global supplies and low domestic cane deliveries as growers switch to producing other crops including corn.  

Any sustained uptick, coupled with mounting price pressures from continued shilling weakness and the removal of fuel subsidies, may bring pressure to bear on the monetary-policy authority to lift rates in July. 

Kamau Thugge, who is set to replace Njoroge after his term ends on June 17, told lawmakers at a vetting hearing on Tuesday that he expects inflation to be within the central bank’s target range by July.       

Key Points:

  • Food prices, which make up almost a third of the consumer price index, rose 10.2% in May, compared with 10.1% in April.
    • The forecast arrival of El Nino — a weather phenomenon characterized by heavy rains and flooding that the IGAD Climate Prediction and Application Centre predicts may arrive as early as July — poses an upside risk to food inflation.
  • The scrapping of fuel subsidies, higher electricity tariffs, an almost 2% depreciation in the shilling against the dollar this month and plans to introduce several new tax measures to finance the budget may exert upward pressures on overall inflation in coming months.
    • Parliament’s budget office said in a report on Wednesday that going forward, underlying cost-push factors remain a significant risk to inflation. “Increased cost of production due to higher power tariffs as well as high import prices due to the spill-over effects of a weak shilling are likely to keep core inflation elevated,” the report said.
  • The transport index rose 10.1% in the month from 9.8% in April as gasoline costs spiked 21% from a year earlier while housing, water, electricity, gas and other fuel inflation accelerated to 9.7% from 9.6%, partly driven by a 66.5% increase in the price of 50 kilowatts of power.

--With assistance from Simbarashe Gumbo and David Malingha.

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