September Inflation Rate to Range Between 5.3 and 5.7 Percent

Despite the expectations of upwards inflationary pressure in H2’2018 due to the imposition of the 8.0 percent VAT charge on fuel as well as other tax measures as introduced in the Finance Bill, the inflation projection rate for the month of September will range between 5.3 percent and 5.7 percent.

According to Cytonn, the month on month inflation will rise due to an increase in petrol prices that increased by 10.4 percent to 125.6 shillings from 113.7 shillings per liter, while diesel and kerosene prices increased by 12.4 percent and 15.0 percent to 115.5 shillings and 97.7 per liter from 102.7 shillings and 85.0 shillings, respectively, from the end of August – 20th September 2018. This followed the earlier imposition of the 16.0 percent VAT on fuel for the better part of the month before the assent of the Finance Bill 2018 that halved the charge to 8.0 percent.

The price increase will directly affect transport costs and indirectly affect food prices in September.

The housing, water, electricity, gas and other fuels index, Kerosene prices went up during the month by 15.0 percent, which is another contributing factor to inflation. However, the expectation is that the prices will be mitigated by a decline in electricity costs as per comments by the Energy Regulatory Commission (ERC) citing that homes and business were due for a refund of 1.3 shillings per kilowatt hour (kWh) after it used a higher dollar rate to compute the foreign exchange levy last month, which had brought a rise in tariffs of up to 52.8 percent in August.

The increase in some food prices such as beans and kales outweighing a decline in others is another reason why the month on month inflation will rise. Also, the pass-through effect of transport costs has had a direct bearing on the food prices as well.

Cytonn projects the inflation in H2’2018 to experience upward pressure but at a lower rate following the reduction in the rate of VAT charge to 8.0 percent from 16.0 percent, affirming the expectations of inflation for the year averaging within the government’s set target of 2.5 percent and 7.5 percent.