July inflation hits 3-month high


July inflation hits 3-month high
File Photo of The National Treasury.

In Summary

  • The hike in inflation has been attributed in great part to the acceleration in the pricing of key agricultural commodities including maize and sifted grain flour and the implementation of new taxes under tax amendments.
  • While the impending harvest season will further support recourse in the rise of food prices; taxes, fuel costs and a depreciating shilling are when combined expected to anchor further shocks to the consumer disposable income.
  • The recent devaluation of the Kenyan shilling against the US dollar will however make for the gravest concern on inflation going forward as real risks of more money chasing fewer goods emerge.

The inflation rate in July has touched a 3-month high of 6.3 percent from 5.7 percent in June highlighting increased pressure on the consumer spending ability.

The hike in inflation has been attributed in great part to the acceleration in the pricing of key agricultural commodities including maize and sifted grain flour and the implementation of new taxes under tax amendments by the National Treasury.

While the overall food and non-alcoholic beverages index has retreated by a single percentage point since the last review, with a slide to the pricing of commodities such as milk, potatoes and sukuma wiki, biting maize grain shortages has countered hopes for further relief to the costing of food.

“The decline in price of these commodities outweighed the observed increase in the cost of other commodities like maize grain, maize flour-loose, carrots and onions which increased by 0.52, 1.33, 6.81 and 1.19 per cent, respectively, over the same period,” noted the Kenya National Bureau of Statistics (KNBS) in its end month inflation publication.

New taxes targeted at the ‘sin’ alcohol and cigarette industries which were made operational on July 1, 2019 to include a Ksh18 and Ksh24 hike of excise duty charged on wine and whisky respectively and a raise of a Ksh.61 tax on a packet of cigarettes have seen the index jump by 0.8 percent during the month.

At the same time, the impact of fluctuating petroleum prices has seen the cost of housing, electricity and transport rise in spite of a hold in the increase of diesel and kerosene prices by the Energy and Petroleum Regulatory Authority (EPRA) in mid-July.

While the impending harvest season will further support recourse in the rise of food prices; taxes, fuel costs and a depreciating shilling are, when combined, expected to anchor further shocks to the consumer disposable income represented in the Consumer Price Index (CPI).

The Kenya Revenue Authority (KRA) is expected to implement new excise taxes on non-alcoholic beverages and cosmetics beginning September 1, 2019 to effectively eat into the level of disposable income available to consumers.

Meanwhile, the pricing of petroleum commodities in the international market is set to remain unpredictable in the near-term irrespective of its recent cool down as tensions in the oil-rich Persian Gulf persists.

The recent devaluation of the Kenyan shilling against the US dollar will however make for the gravest concern on inflation, given the dollar’s impact on major purchases of imports and pricing of essential services including the electricity billing’s fuel-cost charge.

The shilling has been on a free-fall in the past couple of months, hitting both the two and five year low in a matter attributed mainly to increased foreign currency demand by investors and heightened liquidity in the financial markets.

The over-supply of money in the economy has brought forth real risks of more money chasing fewer goods in a build-up which when held in the long-run poses the risk of hyper-inflation.

The shilling touched a low Ksh.104.20 valuation against the dollar at the close of trading on Tuesday before recovering marginally on Wednesday.

While inflation is once again on the rise, the rate holds within the government targeted range of 2.5 to 7.5 percent aligned to the ongoing medium term III plan, with the range being most recently retained for the eighth consecutive year by the National Treasury.

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Story By Kepha Muiruri
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