Gradual Rise in Fuel Prices in 2016 Expected to Push Inflation Rate Higher

The gradual rise in fuel prices for the past five months is expected to push inflation rates higher according to analysts.

“We are projecting inflation for the month of September to rise slightly to within the range of 6.3% – 6.5%, driven by a rise in fuel prices,” according to Cytonn Investments.

The Analysts claim the rise will lead to an increase in transportation costs while having a pass-through effect towards food production, which will be passed down to the consumer.

However, they expect inflationary pressure to be contained within the government target annual range of 2.5% – 7.5%.

The Central Bank of Kenya, although optimistic on the overall inflation that has decreased to 6.3% in August from 6.4% in July, the non-food-non-fuel (NFNF) inflation rose slightly to 5% in August from 4.9% in July.

The Kenya National Bureau of Statistics (KNBS) reported that consumer prices in Kenya increased 6.26 percent year-on-year in August of 2016, following a 6.4 percent rise in July.

This was below the forecasts of 6.77 percent jump as housing and utilities cost rose at slower pace while transport prices fell.

Inflation Rate in Kenya averaged 10.38 percent from 2005 until 2016, reaching an all-time high of 31.50 percent in May of 2008 and a record low of 3.18 percent in October of 2010.

Besides the global oil prices recovering from record lows, implying minimal risks to inflation and Kenya’s trade balance, the Petroleum Institute of East Africa has urged Kenya to plan ahead for a rise in oil prices.

PIEA projects a rise in crude oil prices in the next quarter and early 2017 where a barrel is projected to cost between Sh6,074 and Sh6,580 from the current average of Sh4,397 – a 38 per cent rise.

The trickle effect is pump prices projected to hit Ksh100 per litre in January.

From the Energy Regulatory Commission, currently, petrol costs Sh91.39 a litre in Nairobi, Sh87.99 in Mombasa and Sh93.42 in Kisumu.

A litre of diesel costs Sh82.46 in Nairobi, Sh79.08 (Mombasa) and Sh84.65 (Kisumu).

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However, this should not be a red flag for the government.

Tullow Oil in August in Thursday confirmed that it will start exporting oil in June 2017.

Tullow Oil Chief Operating Officer Paul McDade said his company has made good progress on the Early Oil Pilot Scheme and will be ready to start oil exportation in June 2017 a statement from the government stated.

The oil will be transported by road from Lokichar in Turkana County to Mombasa, where it will be exported.

The plan has the potential to deliver as much as 2,000 barrels a day in the second half of 2017, according to Tullow Oil.

Tullow discovered oil in Kenya in 2012 and estimates there are 750-million barrels of recoverable resources.