Inflation returns to pre-VAT law level after dropping to 6.27pc

The rate of inflation dropped to an eight-month low in March to stand at 6.27 per cent, marking the first time the cost of living measure has reverted to levels prior to the introduction of VAT in September.

Data from the Kenya National Bureau of Statistics (KNBS) shows that inflation dropped from 6.86 per cent despite an increase in bus fares, parking fees and diesel prices.

Kenya’s year-on-year inflation rose to 8.29 per cent in September — a 15-month high — after prices of nearly all items went up as the government revised the law on value added tax (VAT), making all goods taxable apart from basics.

Kenyan authorities prefer inflation at between 3.5 and 7.5 per cent, meaning the Central Bank of Kenya’s next rate-setting meeting is unlikely to worry about inflation trend — which dropped for the second month in a row.

READ: Inflation rate inches closer to Central Bank’s limit

“Although there was a small decrease in the cost of diesel, the transport index increased by 0.3 per cent over the same period,” KNBS said in a statement.

“However, on account of lower fuel cost and forex adjustment charges, the cost of electricity was significantly reduced compared to the same month of the previous year.”

The cost of 50 kilowatts of power stood at Sh516 in March compared to Sh638 in the same month last year, despite the upward review of the consumption tariff in December.

Liquefied Petroleum Gas (LPG) recorded the second highest price gain in the review period, rising 2.22 per cent to Sh3, 094.16 per 13kg cylinder. LPG is mostly consumed by the middle class.

The price of beans rose the sharpest by 2.97 per cent to stand at Sh100.89 per kilogramme.

The latest survey of consumer prices comes at a time when various counties are moving to raise a number of charges including parking fees and property taxes, a move that is set to increase the inflationary pressure.

Nairobi County, for instance, more than doubled its parking fees from Sh140 to Sh300 per day. Despite a lower inflation rate in March, experts expect slightly higher inflation rates of up to 7.58 per cent.

READ: Sh300 Nairobi parking fee takes effect
Analysts at Standard Chartered Bank expect the average annual inflation to stand at 7.2 per cent this year.

The views, captured in a survey by CBK, are based on the expected impact of food-price jumps due to the drought that has hit parts of the country.

Volatile international oil prices and an uptick in electricity prices are also feeding the pessimistic view. The CBK report found that banks are projecting an inflation rate of 7.36 per cent and non-banks 7.58 per cent, up from 7.32 per cent and 7.10 per cent at the end of 2013.