With dearer fuel, brace for high inflation

Fuel pump

An attendant serves a motorist at a petroleum station.

Photo credit: File | Nation Media Group

What you need to know:

  • The rise in global prices is attributable to increased demand for oil in tandem with the reopening of economies as the Covid-19 pandemic subsided.
  • Expect inflationary pressure, given the higher fuel prices following the removal of the Petroleum Development Levy subsidy.

Last week, the Energy and Petroleum Regulatory Authority (Epra) released their monthly statement on the maximum local wholesale and retail prices of petroleum products between September 15 and October 14.

Notably, the announcement of the all-time high pump prices ever in the country was also the first increment in diesel and kerosene prices in six months. The price of super petrol was increased by six per cent to Sh134.7 per litre from Sh127.1, diesel prices by 7.4 per cent to Sh115.6 per litre, from Sh107.7 and kerosene by 13.2 per cent to Sh110.8 per litre from Sh97.9. 

The performance in fuel prices was attributable to removal of fuel subsidies, the increase in the average landed cost for kerosene, increase in the free on board (FOB) price of Murban crude oil last month and the depreciation of the shilling. Global fuel prices have also increased by 2.5 per cent in the first two weeks of this month and by 45.9 per cent to $73.3 (Sh7,400) on a year-to-date basis, up from $50.2 at the end of last year.

The rise in global prices is attributable to increased demand for oil in tandem with the reopening of economies as the Covid-19 pandemic subsided. Expect inflationary pressure, given the higher fuel prices following the removal of the Petroleum Development Levy subsidy.

The subsidy policy had been effective in the past couple of months in lowering fuel inflation as prices remained relatively unchanged despite the global fuel price fluctuations. But the stabilisation was unsustainable, given that the National Treasury had to compensate the oil marketing companies a certain amount of what was lost following the subsidy. 

Another risk of high inflation comes from the recent KRA communication on inflation adjustment on specific rates of excise duty next month. The changes may exert upward pressure on the inflation rate in the coming months as the burden is passed on to the consumers.

Mr Wamayuyi is an economic researcher. [email protected]

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