Inflation is likely to feature prominently as the Monetary Policy Committee (MPC), the top policy organ of the Central Bank of Kenya(CBK) meets on Wednesday 27th January 2021.
All attention will be on how the Central Bank Kenya Governor Dr Patrick Njoroge and his policy thinktank tackle the question of the rising cost of living, a wobbling Kenya Shilling and a cash-starved economy that is yet to recover from COVID-19 pandemic shocks.
In this article
December 2020 Inflation Rate
Kenya’s Monthly Inflation rate climbed to 5.62% in December 2020, an 8-month high from 5.33% the previous month.
Kenyans paid more for food items, transport, electricity, water, gas and other fuels such as kerosene/paraffin.
Compared to the month prior, food and non-alcoholic beverages had the most price hikes in December at 2.45%. Transport cost, which makes up 9.65% in the household basket weight, was up 1.15%.
Households had to contend with increases in rent, electricity, water, cooking gas and other fuels prices, which shot up by 0.59% in December 2020.
Cost of food
The list of food items that had the highest price increases was Spinach(1KG) whose price rose by 8.09%, I KG Oranges (6.18%), Sukuma Wiki (Kales) up 5.61% and 2KG packet of wheat flour whose price was up 4.75%.
December also saw an increase in the price of food items such as carrots, onions, potatoes and cabbages. December 2020 saw Consumer Price Indices (CPI) increase by 0.98% from 110.779 to 111.866.
Motorists felt the pinch at the pump as the transport index increased by 1.15% due to a rise in the retail prices of diesel and petrol.
New Taxes in 2021
Beginning midnight of December 31st, 2020, Kenyans began paying the new 16% VAT, lowered to 14% as part of the COVID-19 relief package.
Other taxes that have kicked include the Digital Services Tax for firms providing services or trading on the digital market place.
Companies are also paying the new turnover or instalment tax, at the rate of 1.0% of turnover or instalment tax.
Instalment tax also affects loss-making firms, including the more than 14 listed firms that have issued profit warnings.
Kenya Revenue Authority (KRA) expects to raise an estimated KSh 30 Billion in the first full financial ear after the turnover tax comes alive.
Kenyans will be paying this tax quarterly in April, June, September and December 20th.
Central Bank November MPC meet
At its last meeting on November 26th 2020, MPC downplayed inflation threats to retain its benchmark CBR at 7% for the fifth time in a row.
Analysts contend that CBK is unlikely to alter the Central Bank Rate (CBR) to give the economy some headroom to recover and grow.
“We expect the CBK MPC meeting to retain the benchmark policy rate at 7.00%. This will be on account of the negative output gap in the economy that would ordinarily justify a further accommodative monetary policy stance.” noted analysts at Nairobi based brokerage Genghis Capital in a note to investors.
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