Kenya’s annual inflation rate rose to 6.67% in August from 6.02% a month earlier, data by the Kenya National Bureau of Statistics showed. The acceleration in inflation can be explained with higher fuel prices and a new VAT (value added tax) law that increased the number of goods and services subjected to VAT.

The prices of food and non alcoholic beverages, which are the main inflation driver with a 36.04% weight in the consumer basket, rose 9.74% y/y last month, speeding from a 8.44% y/y growth in July. The prices of housing, water, electricity, gas and other fuels, which account for 18.3% of the total consumer price index (CPI), rose 4.58% y/y, speeding from a 4.39% annual growth in July, driven up mainly by higher prices of kerosene and electricity. Transport prices, which have an 8.66% weight, grew 6.66% y/y, up from a 4.9% y/y rise in the previous month, mainly due to higher pump prices of petrol, diesel and public transport fares.

Kenya’s monthly headline inflation rate accelerated to 0.3% in August from 0.2% in the previous month, with food prices growing 0.1% (-0.1% in July), housing, water, electricity, gas and other fuels prices rising 0.99% (+0.13% in July) and transport process climbing 0.84% (+0.98% in July).

The acceleration of annual inflation rate to its highest level since July 2012 suggests that the Central Bank of Kenya would put on hold its easing monetary cycle and keep its benchmark lending rate at 8.5%. The bank’s monetary policy committee will hold its next rate setting meeting on Tuesday (Sep 3).