An uptick in local food prices, steady increase in global commodity prices coupled with relatively higher taxes adopted in the current budget are set to push up the cost of living in the next six months.
During the second quarter last year, the government rolled out lower tax rates as it sought to cushion Kenyans during the onset of the pandemic.
“In the three months to March this year, the government increased taxes on major commodities such as the liquefied petroleum gas, airtime, and data, these are likely to exert marginal upward pressure on inflation,” analysts at AIB-AXYS Africa research note in their second quarter survey.
In the three months to September, the analysts said the rate of change in the cost of goods is likely to register a marginal increase but remain below 4 per cent as consumer demand remains muted even as inflation hurtles towards Central Bank of Kenya upper target of 7.5 per cent largely driven by higher food and fuel prices.
In Kenya, a significant chunk of the high fuel prices is attributable to high taxes slapped on the commodity as the taxman seeks to raise revenues.
In July, the Energy and Petroleum Regulatory Authority (EPRA) slashed the oil suppliers’ sales margin by roughly Kes 7.31 per liter to keep petrol and diesel prices unchanged from June prices in an effort to cushion the consumers.
The oil importers were compensated through the Petroleum Development Levy a move that not likely to offer a long-term solution as an increase in global prices will push pump prices higher at a time when the fund might be inadequate in subsidizing prices for the months ahead.
A cut of taxes on oil products would offer a more lasting solution but this might not be possible as the government is keen on increasing tax revenues to finance the current Kes 3.7 trillion budget.
“Growth in 3Q21 is likely to pick up as the government embarks on its economic recovery plan to help achieve a resilient economy by focusing more on key sectors such as agriculture, manufacturing and improving infrastructure across the country,” said AIB-AXYS Africa research note.