Kenyan Inflation Breaches Central Bank Target on Tax Measure

Kenyan inflation accelerated in September, breaking through the upper limit of the central bank’s target range, after the government increased the number of items subject to value-added tax and gas prices rose.

The rate climbed for a fourth straight month to 8.3 percent from 6.7 percent in August, the Nairobi-based Kenya National Bureau of Statistics said today in an e-mail. Prices rose 1.8 percent in the month. The median estimate of 3 economists surveyed by Bloomberg was 7.4 percent.

“Inflation climbed due to the VAT Act and the markets expected this one-time event,” Aly-Khan Satchu, chief executive officer of Rich Management Ltd., a Nairobi-based adviser to companies and wealthy individuals, said by phone. “We don’t expect to see much impact on the economy. We expect inflation to stabilize then start to ease again.”

The government this month began applying the 16 percent value-added tax on a wider range of goods, putting pressure on consumer prices. Adding to that, the cost of petrol climbed in September by 1.4 percent in Nairobi.

“Basic food prices increased partly because of VAT,” Vimal Parmar, head of research for Nairobi-based Burbidge Capital, said by phone. Food costs increased 2.9 percent from the previous month, the statistics bureau said.

Monetary policy makers next convene in November to review the key lending rate, which was left unchanged for the second meeting at 8.5 percent on Sept. 3. The government targets 5 percent inflation, plus or minus 2.5 percentage points.

Treasury Secretary Henry Rotich said on Sept. 27 that the country’s economic growth target for 2013 remained at 5.5 percent to 6 percent, even after a four-day attack by Islamist militants on a Nairobi shopping mall left at least 67 civilians and security forces dead. Five militants were killed in the standoff with police and army personnel that ended on Sept. 24.

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