Monday, July 22, 2013

Urban Inflation Index: July 2013

There is much debate about an upcoming VAT bill and the current government budget deficit, separation of powers, and transfer of funding responsibilities to devolved governments (even as some entities like road contractors, and teaching & health unions prefer to deal with the central government. This weekend, County Governors floated a proposal for the country to hold a new referendum, which will be the 6th Kenyan public vote in 12 years, to decide on an increase in the allocation of funds to counties from the current 15% to 40%.

The  VAT Tax Bill (PDF) seems to tax everything at 16% with only a few exemptions. Exclusions from the tax will include;  
  • Supplies to the red cross, emergency relief, personal goods brought in by travelers, supplies to international and regional organizations, supplies to multilateral and bilateral donors, supplies of to diplomats and governments, oil prospecting, international air travel, and bottled water makers. 
  • Services in sectors like banking, insurance, education, medical, agriculture, local transport, residential, stock brokerage, sports, arts & plays, mobile airtime, and gambling. Even though they are exempted here, banks are passing on a new tax to their customers amounting to 10% per transaction while Kenya Airways management has said that the airline will shut down if the bill is passed as it will affect operations by increasing the cost of jet fuel, aircraft purchase/leasing and landing/ parking fees.
  •  Petrol, Kerosene and Natural gas are exempt but only for the next 3 years.  

On to the index that compares prices to a year ago and three years ago. 

Gotten Cheaper

None really 

About the Same 

Mobile Communications:

Communication costs are largely unchanged with slight variations in promotions for voice and data usage. The big moves are in mobile and card payments with companies seeking to increase their awareness and become the preferred payment platforms for ordinary Kenyans such as by using Safaricom's Lipa Na M-pesa and Equity Bank's Beba Pay and PayPal channeles. 

More Expensive

Staple Food: A 2kg pack of (Unga) Maize flour, which is used to make Ugali that is eaten by a majority of Kenyans daily, costs Kshs. 104 compared to 118, a year ago. But this is 46% more than the Kshs. 71 price of three years ago.

Beer/Entertainment: A bottle of Tusker beer is Kshs 200 (~$2.3) at a local pub, up from 180 last year and 160 three years ago. There have been two recent price hikes, but this may have more to do with EABL's management and procurement outlook, and the price may go up more with future taxes. 
Fuel: At Kshs 109.52 per litre (~$5.73/gallon), petrol prices in Nairobi are slightly cheaper than the Kshs 117.6 per litre a year ago but about 20% more than the Kshs 90.9/litre  of three years ago. Petrol, Kerosene and diesel prices are set by the government and even with the prospect of oil discovery, the major retailers are going through some turbulent times with both listed Total and Kenol reporting losses. 

Foreign Exchange: 1 US$ equals Kshs 87.15 compared to 84.25 last June and  80.6 three years ago  in March.

Other food item: A 2 kg. Mumias Sugar pack is Kshs 250, which is up from Kshs. 237 a year ago, and Kshs 200 three years ago.


Factors likely to affect the the cost of living include:

- Consumers are likely to see an electricity cost increase due to debts for generation of hydro power.
- The National Social Security Fund is proposing  a 4400% increase  in monthly contributions (for the highest earners) from Kshs 400 per month to 18,000 (~$210)

 - A new 1.5% levy on all imports was effected on July 1, to fund a future standard gauge railway between Mombasa and Kisumu. 

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