Kenya’s inflation increased by 5.62% in December 2020

Data from the Kenya National Bureau of Statistics reveals that the Consumer Price Index in December stood at 111.56, compared to 110.78 in November 2020


Kenya’s inflation increased by 5.62% in December 2020

The inflation rate for the month of December edged upwards to an 8-month high of 5.62% from 5.33% the previous month.

A rise in the prices of essential food items, transport, electricity, water, gas, and other fuels such as kerosene/paraffin, contributed to a surge in the December cost of living index.

The National Statistical Office’s latest figures show that food inflation had the most significant price increases between November and December 2020, at 2.45%.

With December inflation figures on the rise, there are signs that the month of January could usher in even more tough times for Kenyan households and businesses.

Effective midnight of December 31st, 2020 firms in the digital marketplace will pay a Digital Services Tax at 1.5%. The taxman projects to raise at least KSh 5 Billion from digital services tax, at the end of the financial year ended June 2021.

Household items are set to become costly following a hike in VAT back to 16%. Individual Income tax has also reverted to 30% from 25% while the Pay as You Earn (PAYE) tax band has been lowered to KSh 32,333.

Businesses seeking a permit will have to bear the cost which has risen up by 30%, effective January 1st, 2021.

Transport Index

Cost of transport, which comprises 9.65% in weight of the household basket, was up 1.15%, while rent, electricity, water, cooking gas, and other fuels were also up in December by 0.59% compared to November 2020.

Food Index

Food items that had the highest price increases were led by Spinach (1KG), whose price rose by 8.09%, followed by I KG Oranges(6.18%), Sukuma Wiki (Kales) at 5.61%, and 2KG packet of wheat flour (4.75%).

The month of December also saw an increase in the prices of cabbages, carrots, onions, and potatoes.

KNBS data shows that the December 2020 Consumer Price Indices (CPI) increased by 0.98% from 110.779 in November 2020 to 111.866 in December 2020.

The Housing, Water, Electricity, Gas and Other Fuels’ Index increased by 0.59% between November and December 2020. This is mainly attributed to increases of 0.76% and 2.08% in the cost of electricity and kerosene, respectively.

The Transport index increased by 1.15% over the same period mainly due to an upward rise in the retail prices of diesel and petrol by 1.20% and 0.92%, respectively.

January inflation pushers

Beginning midnight of December 31st, 2020, Kenyans have started paying the new 16% VAT, previously lowered to 14% as part of the COVID-19 relief package.

Turnover tax

Companies are also required to pay the new turnover or installment tax, at the rate of 1.0% of turnover or installment tax, whichever is higher.

This new tax will also affect loss-making firms, including the more than 14 listed firms that have issued profit warnings.

Kenya Revenue Authority (KRA) projects to raise an estimated KSh 30 Billion in the first full financial year after this turnover tax takes effect. This minimum tax is to be paid quarterly in April, June, September, and December 20th.

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