Inflation hits 12-month high due to VAT on fuel

Kenya's inflation increased to 5.7 per cent in the month of September from 4.04 per cent the previous month due to increased taxes on petroleum products.

The rate is the highest in 12 months, an indication that that the impact of VAT on fuel is sieving into the economy.

Data from Kenya National Bureau of Statistics (KNBS) released Friday showed that all the broad baskets used to measure inflation recorded an increase, pointing to the multiple sectors that felt the 16 per cent Value added Tax (VAT) that has since been reduced to eight per cent.

The statistics office said that transport index increased by 7.99 per cent compared to the previous month and 17.29 per cent compared to a similar month last year.

“This was mainly on account of increase in the pump prices of petrol and diesel which triggered increase in prices of other transport components,” said KNBS in a statement.

Matatus were charging Sh449.77 per 250-kilometre journey, up from Sh416.75, according to KNBS data. When compared to last year in September, matatu prices are up 18.5 per cent.

Price of kerosene averaged Sh109.25 per litre, being 27.2 per cent higher than it cost in August. Compared to September last year, this commodity is now 67.2 per cent more expensive. This even as the price of charcoal rose by 2.6 per cent to Sh141.24 per four kilograms. When compared to a similar month last year, charcoal prices are up 72.5 per cent.

“Charcoal prices increased drastically sometimes ago and this relates to the ban on logging. We expect this to remain so because this ban remains in place,” Central Bank of Kenya (CBK) governor Patrick Njoroge had said on Wednesday.

At the same time, month-on-month price of a litre of petrol jumped by 2.6 per cent to Sh117.54 as that of diesel rose by 5.1 per cent to Sh108.97.

Food and non-alcoholic drinks index which forms about 36 per cent of the basket used to compute inflation, also rose by 0.37 per cent as the increase in prices of some foodstuffs outweighed those whose prices dropped.

The rise in inflation remains within CBK target range of 2.5 per cent and 7.5 per cent. Given that the prices used for September were collected during the period in which most of that time it was 16 per cent VAT that was in operation, CBK expected the rise.

“We expect the CPI number to be unusually high since the survey of prices was taken during second and third week during which most of that time higher prices were in place,” he said on Wednesday.