Navigating Inflation: A Smart Investor's Guide to Protecting Your Wealth

By Ms. Maureen Otuoma

Consider this, how did your shopping list look like two years ago with a budget of Kes 1,000? Consider the same amount today, what items would a thousand bob get you? Now, if that money cannot buy what it used to, right there is what inflation has done to your purchasing power. Inflation forms an integral and natural part of the economy; it is a measure of the changing cost of goods within a given time. This rate is determined by tracking the changes in prices for selected goods (a basket of goods) that have different weights within the basket. In August, the inflation rate was reported as 4.5% an increase from 4.1% reported in July.

Inflation matters as it affects the value of your hard-earned money. As a consumer, you may want to be able to buy the same goods with the same amount of money or buy more goods with the same money. Now, as an investor, you want your investment to earn you a rate of return higher than inflation, to be able to afford or maintain your standard of living. A rate that accounts for inflation and fees chargeable is the real return on your investment. What you see on paper is the nominal rate of return.

While the real rate of return is primarily affected by inflation, the nominal rate is more responsive to the inflation rate. When inflation rises, the Central Bank of Kenya (CBK) may increase its base lending rate to ensure the money received from loans holds its value in the future. For example, in June 2015, the Monetary Policy Committee of the CBK increased its base rate to combat high inflation, making borrowing more expensive to slow down the money supply and stabilize the shilling's value. Conversely, a decrease in the base rate is used to stimulate the economy. A recent example of this is the CBK's decision to lower the Central Bank Rate by 25 basis points to 9.50% in August 2025. This move, part of a series of cuts, was aimed at promoting lending and spurring economic growth, as inflation had remained within the target range. Ultimately, the CBK's decisions on the base rate are a delicate balancing act to control inflation while supporting economic growth.

Ultimately, understanding inflation is the first step, but action is what truly protects your wealth. Do not let the complexities of the market hold you back from achieving your financial goals. At CPF Asset Managers, our mission is to empower you with intelligent investment strategies designed to not just keep pace with inflation, but to outpace it. We are your partner in securing a future where your money works as hard as you do. Reach out to us today and take the next step toward financial independence!