A fall in Kenyan food prices pushed inflation lower in July, official data showed on Friday, defying market expectations which forecast a slight increase in the cost of living.
The Kenya National Bureau of Statistics (KNBS) said in a statement that inflation eased to 6.62 percent year-on-year in July from 7.03 percent in the previous month.
A Reuters poll had returned a consensus forecast of 7.20 percent for the rate. Kenya's currency has lost 11.5 percent against the dollar this year and policy makers have warned there is a risk it could drive inflation higher.
The central bank raised its benchmark lending rate by a total of 300 basis points since June.
Razia Khan, head of research for Africa at Standard Chartered in London, said the rate would still head higher by the end of the year.
"With the impact of shilling weakness still to be factored in, we see inflation above 9 percent by the year end, justifying the tightening stance of the central bank now," she said.
The central bank has a medium term inflation target range of between 2.5 percent and 7.5 percent.
The food and non-alcoholic drinks segment, which accounts for more than a third of the index, declined by 0.60 percent on a monthly basis, driven lower by a fall in the cost of maize, potatoes and cabbages, the statistics office said.
On a monthly basis, the inflation rose 0.11 percent from June.