Inside Politics

Experts warn of tough times ahead as fuel prices increase

Thursday, September 16th, 2021 01:02 |
Pump price. Photo/Courtesy

The anger that engulfed Kenya yesterday after the release of pump prices demonstrated how consumers are getting sick with the ever-rising cost of living.

As a key enabler of economic growth, the historic increase in cost of fuel puts instant pressure on consumers by driving up the costs in almost all sectors, but ultimately the common mwananchi will suffer the most.

That is why Energy and Petroleum Regulatory Authority (Epra) on Tuesday announcement that pump prices for super petrol, diesel and kerosene had increased by Sh7.58, Sh7.94 and Sh12.97 per litre respectively set social media on fire.

The surge in fuel prices will see motorists pay up to Sh137 per litre for super petrol, with the price for the product being Sh134.72 in Nairobi and Sh132.46 in Mombasa.

In Nakuru, petrol will retail at Sh134.24 per litre and Sh135.13 in Eldoret town. According to Ken Gichinga chief economist at Mentoria Economics, “when you touch fuel, you affect many sectors, not least the food and transport sectors” which affect mwananchi directly.

“Food and transport will increase in the short term, however, in the long term higher costs of inputs will follow.

Remember wages have been stagnant while others have been reduced. This means that businesses will not expand as they would want to. Remember we already lost more than 700,000 jobs,” he said.

Consumer Federation of Kenya boss Stephen Mutoro warned that the net effect in the cost of living will be felt immediately.

“Cost of food, transport and production will be escalated in a move that will occasion loan defaults and unemployment, especially within the informal sector,” he said.

Most Kenyans majorly bank on kerosene and gas for lighting and cooking, making the price of fuel a key determinant of the rate of inflation, affecting the low income earners the most.

Energy and transport costs also have a significant impact on costs when weighing the basket of goods used to measure inflation in Kenya.

Further, manufactured of goods are also expected to factor in the higher cost of fuel, which will have a bearing on the cost of living measure as will running of agricultural machinery have a direct knock-on effect on the cost of agriculture produce.

Negatively impacted

Manufacturers lobby say while they have been negatively impacted by the high costs of power which increases the cost of production, leading to policy initiatives to reduce the costs including discounted time of use tariff and electricity rebate programme, the current surge in cost of fuel will hurt the sector further.

“With an increase in the price of fuel, the cost of electricity is also expected to rise.

This will further negatively impact on the cost of production for manufacturers and undermine their competitiveness both domestically and regionally,” said Phyllis Wakiaga, Kenya Association of Manufacturers  chief executive.

Raphael Matu, economist and financial analyst at Finsolution agrees saying the cost of fuel which will impact on the cost of production greatly. “Fuel has the most spiral effect on nearly everything.

Transport will go up almost immediately and expect consumables to increase followed by electricity in the short term,” he said.

The pain is, however, further compounded by projections that global oil prices are likely to go up as demand peaks amid a cut in production by producers, in a move set to push up the cost of living in importing nations like Kenya.

Further, the taxman also intends to increase excise duty for various products to cover for the 2020/21 inflation, in a move that will further affect the cost of fuel and other products.

Kenya Revenue Authority (KRA) says inflation adjustment on specific rates of excisable goods will be introduced by Excise Tax Act 2015 and empowers Commissioner General, KRA to adjust specific rates based on an annual average inflation rate for the previous financial year. 

Already, the taxman has proposed adjustment rate for 2021 to commence 1st October at 4.97 per  cent.

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