Kenyan households are bracing for another increase in the cost of living this month as global crude oil prices continue to rise. The international benchmark, Brent crude, has traded above $100 a barrel for the past month, climbing towards $108 this week. This development is likely to lead to higher pump prices, transport costs, and commodity prices, adding to the already elevated prices in the country.
The latest oil shock comes as Kenyan households are already dealing with high prices, with annual inflation rising to 6.8 per cent in September from 6.6 per cent in August. Food inflation stood at 9.5 per cent, while transport costs rose 15.6 per cent year-on-year. The Kenya National Bureau of Statistics reported these changes, indicating that the cost of living is becoming increasingly challenging for Kenyans.
The Energy and Petroleum Regulatory Authority (EPRA) is set to review maximum pump prices on October 14, which could lead to further increases in fuel prices. Although EPRA retained prices for the September 15-October 14 cycle, the current international market conditions have changed considerably since the current prices were set. Brent futures have climbed to around $107.35 a barrel, and the prices have remained volatile due to developments around Middle East supply and diplomatic efforts.
The surge in global oil prices is attributed to continued disruptions linked to the conflict in the Middle East, with US President Donald Trump rejecting an Iranian proposal linked to reopening the Strait of Hormuz. The Strait of Hormuz is crucial as it carries a substantial share of global oil supplies, and any prolonged disruption would increase crude and shipping costs for oil-importing economies such as Kenya.
Manufacturers are warning that higher fuel prices could quickly spread through the economy, creating an increasingly uncertain operating environment for local industrialists. Kenya Association of Manufacturers chief executive Tobias Alando stated that sustained high fuel and transport costs would ultimately filter down to consumers through elevated commodity prices.
The impact of higher fuel prices is also being felt by public transport operators, with Matatu Owners Association president Albert Karakach calling for government intervention to cushion operators and commuters from high fuel prices. Transport inflation was among the largest contributors to September's cost pressures, and a further increase in diesel would raise operating costs for matatus, buses, trucks, and other commercial vehicles.
The government has retained the reduced 8 per cent VAT on petroleum products until October 14, providing some relief to motorists. However, prolonged increases in international oil prices could test the extent to which taxes and other components of the pricing formula can cushion consumers. The Central Bank of Kenya has also flagged global oil prices and the Middle East conflict as risks to inflation.
Key points
- The surge in global oil prices is likely to lead to higher pump prices, transport costs, and commodity prices in Kenya.
- Kenyan households are already dealing with elevated prices, with annual inflation rising to 6.8 per cent in September.
- The government has retained the reduced 8 per cent VAT on petroleum products until October 14 to provide some relief to motorists.
