East Africa: Fuel Tax Plans By East Africa Governments Add Inflation Fears

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East African central banks forecast an increase in the prices of goods and services in the second half of this year, fuelled by a jump in the international prices of crude oil and the planned imposition of taxes on petroleum products and financial services by some countries.

The Bank of Uganda (BoU) Governor Emmanuel Tumusiime-Mutebile said the country’s inflation will rise gradually due to the planned increase in indirect taxes on fuel pump prices and financial services envisaged in the 2018/19 budget.

He said that although Uganda’s inflation is expected to stabilise at the medium-term target of 5 percent by the end of 2019, threats posed by the crude oil prices, food and the exchange rate could cause a surge in the cost of living.

Uganda’s inflation for April declined to 1.8 percent from 2 percent in March attributed to a reduction in food prices.

In Tanzania, April inflation decreased to 3.8 percent from 3.9 percent in March, due to a decline in food prices but there are fears that a surge in fuel prices would see an increase in the next few months.

“It is expected that the headline inflation will remain at single digit despite threats of an increase in commodity prices on the world market, in particular, rice and petroleum products,” said Bank of Tanzania.

In Kenya, the business community expects prices of goods and services to rise in the second half of this year occasioned by the growth in the international price of crude oil and the government’s plan to impose a 16 percent value added tax on petroleum products starting September.

The knock-on effect

A market survey by the Central Bank of Kenya carried out in March shows that financial institutions and other private businesses anticipate inflation to rise but would remain within the government target range of 2.5 percent to 7.5 percent.

“Respondents attributed the expected marginal upward pressure on inflation to higher international oil prices, and the likely impact of VAT on petroleum products, which is expected to be introduced in September 2018,” the CBK said.

Kenya’s inflation has gone down from 11.48 percent in April 2017 to 3.73 percent in April 2018, according to the Kenya National Bureau of Statistics.


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