Fuel Price Shock, Rising Bond Yields Threaten Kenya’s Economic Outlook as SIB Flags Inflation Risks

Standard Investment Bank warns that global energy disruptions, higher borrowing costs and mounting inflationary pressures could complicate Kenya’s economic recovery, even as domestic liquidity remains stable and investor demand for government securities stays strong.

Kenya’s economic outlook faces mounting pressure from rising international fuel costs, higher global borrowing rates and persistent geopolitical tensions, with Standard Investment Bank (SIB) warning that the combination could increase inflation, widen the current account deficit and push domestic interest rates higher.

In its Fixed Income Weekly Report dated October 19, 2026, SIB said disruptions to global energy supply routes had triggered sharp increases in international petroleum prices, forcing the Energy and Petroleum Regulatory Authority (EPRA) to raise maximum retail fuel prices for the October 15 to November 14 pricing cycle.

Super Petrol prices increased by KSh12.93 per litre, diesel by KSh9.90 and kerosene by KSh28.49, reflecting escalating international landed costs as geopolitical tensions in the Middle East disrupted oil and refined petroleum product supplies.

The investment bank warned that continued pressure on energy markets could feed into domestic transport, manufacturing and distribution costs, complicating efforts to contain inflation and sustain economic growth.

The latest developments come as Kenya’s annual inflation rate climbed to 6.8% in September 2026, extending an upward trend that began earlier in the year. The rising cost of essential goods and services threatens household purchasing power while increasing operating expenses for businesses.

According to SIB, international disruptions affecting the Strait of Hormuz and the Red Sea corridor, combined with attacks on Saudi Arabia’s East-West pipeline infrastructure and restrictions on refined petroleum exports, have forced suppliers to seek more expensive cargoes from alternative markets.

Global free-on-board prices for Super Petrol, diesel and kerosene have risen by 89.45%, 90.64% and 84.01%, respectively, since February 2026, underscoring the scale of the supply shock.

The pressure was reflected in September’s landed petroleum costs, which increased by 11.81% for Super Petrol, 11.32% for diesel and 9.41% for kerosene compared with August.

However, the latest retail price adjustments were smaller than the increases in landed costs, reflecting government interventions intended to cushion consumers against the full impact of the international price shock.

SIB noted that the government-to-government fuel procurement framework continues to generate estimated savings of KSh17.04 per litre through capped freight and premium costs. The government has also extended the reduced 8% value-added tax on petroleum products through January 14, 2027.

In addition, the Petroleum Development Levy Fund received a total deployment of KSh29.4 billion during the 2025/2026 financial year, including KSh24.3 billion applied between April and June 2026 to support market stabilisation.

Despite these measures, the bank cautioned that supply constraints could persist, particularly for diesel, leaving Kenya exposed to further increases in import costs and domestic inflation if tensions in the Middle East escalate.

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Government borrowing costs face renewed pressure

Beyond the energy market, SIB identified rising global bond yields as another risk for Kenya’s fixed-income market, particularly as the government continues to rely heavily on domestic borrowing to finance its budget deficit.

The bank reported that average yields on Kenyan government securities edged up by approximately 0.22 percentage points during the week under review, reflecting the pressure building across the domestic debt market.

Internationally, US inflation accelerated to 3.9% year-on-year, while the yield on the US 10-year Treasury approached 4.85%. Higher returns on US government debt have increased pressure on emerging and frontier markets as investors demand greater compensation for holding riskier securities.

SIB said the global sell-off in sovereign bonds had also pushed African Eurobond yields higher, raising the cost of accessing international capital and adding to debt-servicing pressures.