Kenya’s inflation rate fell more than projected in July and reached the central bank’s target range earlier than expected despite an increase in taxes on gasoline that stoked transport costs.
(Bloomberg) — Kenya’s inflation rate fell more than projected in July and reached the central bank’s target range earlier than expected despite an increase in taxes on gasoline that stoked transport costs.
Consumer prices rose an annual 7.3%, the slowest rate in 14 months, compared with 7.9% in June, the Nairobi-based Kenya National Bureau of Statistics said Monday in an emailed statement. The median estimate of seven economists in a Bloomberg survey was 8%. Central bank Governor Kamau Thugge said earlier this month he expects inflation to be back inside the target band of 2.5% to 7.5% by October.
Read: Kenya July Consumer Prices Rise 7.3% Y/y, Est. +8.0%
The main driver of the slowdown was food prices. The food index, which accounts for a third of the inflation basket, rose an annual 8.6% in July, the slowest in two years, compared with 10.3% in June, and decreased 0.5% month-on-month. The transport index rose 13% after the price of gasoline jumped 7.4% to 195.53 shillings ($1.37) per liter on July 1 when the government doubled value-added tax on petroleum products to 16%.
Inflation pressures are likely to stay elevated on continued currency weakness and the implementation of taxes that were introduced to fund the nation’s record budget for the year through June 2024. An appellate court on July 28 overturned a high court freeze on the levies until a judgment on the matter is given within 60 days.
The taxes that include an excise duty on fees charged for money-transfer services by telecommunication companies that increased to 15% from 12%, and a housing levy, “are likely to act as a counterbalance to a reduction in inflation as producers push on higher costs to consumers,” Nairobi-based Sterling Capital said in a research note.
Lingering price pressures may see Kenya’s monetary policy committee tighten the benchmark interest rate again at its next meeting on Aug. 9 to battle second round effects. The MPC last month convened an unscheduled meeting and raised the benchmark rate by a percentage point, its steepest increase since July 2015, in its first key policy action under Thugge.
Read: Kenya Raises Key Rate by Most in Eight Years at Surprise Meeting
–With assistance from Rene Vollgraaff and Simbarashe Gumbo.
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