Inflation fears as pump prices rise, yet again

Updated: May 16, 2011

The price of petrol, kerosene and diesel—key drivers of economic growth –rose for the sixth consecutive month on Sunday, spiking inflation and interest rate fears in the coming months if the trend is allowed to continue.

Inflation—which measures the cost of living—hit the double-digit mark in April from a low of 3.1 percent in November 2010 driven mainly by the rise in cost of basic commodities and energy.

“Consistent rise of inflation figures is normally followed by a rise in interest rates and subsequently a dip in returns for most investments,” said Paul Mwai, chief executive of African Alliance, an investment bank.

In Kenya, any changes on the price of fuel results in a rise in inflation as petrol and diesel are used a lot in the manufacturing, electricity and transport industries while kerosene plays a crucial household cooking.

On Saturday, Energy Regulatory Commission (ERC) published guidelines that saw the price of super petrol go up by Sh4.20 per liter, diesel by Sh2.60 and Kerosene by Sh3.90.

Motorists began bearing the increased costs on Sunday. In Nairobi, a litre of Super Petrol will retail at Sh115.35 up from Sh111.20.

In Mombasa, motorists will pay Sh112.09 for a litre of Super petrol while in Nakuru, Eldoret and Kisumu the same will cost Sh116.43, Sh117.54 and Sh117.60 respectively.


Kenya imported crude at $112 a barrel in March from $95 in February. Low-income households, who rely heavily on diesel for transport and paraffin for lighting and heating, are bound to suffer the most as they normally spent most of their income on the basic necessities.

ERC attributed the sharp rise in fuel prices to expensive crude in the international market driven by rising demand and supply fears due to upheavals in North Africa and Middle East countries, which are the leading producers of oil. ERC said the weakening of the shilling against the dollar had worsened the impact. Last month, the Shilling hit a low of Sh85 to the dollar.

Locally however, there has been speculation that oil companies fighting a pricing cap formula and supply constraints and market share jostling are behind the rise in pump prices for the sixth consecutive month.

Going forward, expensive fuel could also weaken the Kenyan shilling against the dollar as the economy ups its demand for more green-backs due to panic buying or stocking up beyond normal levels.


But what is worrying many is the possible rise in the cost of commodities and essential services such as transport as the suppliers pass the cost to the end consumers as had been earlier hinted by Federation of Kenya Employers, Matatu Operators Association and Kenya Association of Manufacturers.

During Labour Day celebrations, Cotu secretary general Francis Atwoli said they would be issuing a 21-day strike notice, following the Government’s failure to up workers’ minimum wage by the demanded 60 per cent.

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