Inflation in Kenya Could Hit 6% As Fuel Costs Rise, Stanbic Says

(Bloomberg) -- Kenya’s introduction of a 16 percent value-added tax on gasoline this month could drive headline inflation to 6 percent in September and 7.5 percent in October if retained, according to Stanbic Holdings Plc.

While the East African state introduced the levy in 2013 to grow tax revenue, it was initially deferred for three years to ameliorate the impact on consumers, and then for another two years, which ended on Aug. 31. Last week, lawmakers voted to postpone its enactment further to 2020 in a Finance Bill that still requires the president’s assent to become law.

“A reversal in fuel prices, assuming the Finance Bill is passed, could lead to a sharp contraction of the headline CPI on a month-on-month basis in October,” Stanbic’s regional economist, Jibran Qureishi, said in an emailed note.

The new tax is projected to net the government approximately 71 billion shillings ($705 million) in additional income, according to the Treasury.

The Kenya National Chamber of Commerce and Industry asked President Uhuru Kenyatta to sign the bill to ease the burden of rising costs on consumers and fend off any effect on other basic products, Chairman Kiprono Kittony said in an emailed note.

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