Sailing To The Ceiling?

Implications of the cost of fuel prices in Kenya.

Over the past three months, Kenyans have felt the heat of ever-increasing fuel prices. The prices have shot up on the account of the growing demand for oil as economies shake off the impact of the COVID- 19 pandemic and the more recent Russian-Ukraine war. The Kenyan shilling has also weakened against the dollar implying that fuel importers will use more shillings to import the same volumes of oil. This led to oil vendors withholding products from the Kenyan market while diverting fuel to neighboring countries in a bid to compel the government to track their payments as well. The Kenyan government had partially withdrawn the fuel subsidy sending diesel and petrol prices to an all-time high since October last year.

With historic heights, the super petrol and diesel prices shot by sh. 5.50 signaling the increase in the cost of basic goods and services hence having a direct impact on the Kenyan economy. The energy and petroleum Regulatory Authority (APRA) set the new retail prices at sh.150.12 for a litre of super petrol and sh. 131 for diesel. This single-handedly shows that there will be tough times for households and motorists given that fuel is the key determinant of the basket of goods and services used to measure inflation. When the fuel prices increase a larger share of the household’s budget is likely to be spent which leaves less to spend on other goods and services. For businesses, whose goods must be shipped from place to place the shipping prices will be much more expensive therefore increasing the prices of goods. This price has also shifted the growth of the economy through its effect on supply and demand for goods and services brought about by the production costs increasing slightly higher than expected.

Despite the increase in fuel prices the government committed to pay marketers an estimated sh. 14.39 billion as a subsidy to prevent further price escalation. The subsidy has come under increased pressure as the state struggles to compensate for the high deltas amid the global rally in crude prices. Apart from straining the government finances, higher fuel prices drive up inflation which sees lots of economic policies not being implemented. The inflation rate is expected to rise by 50%   in the coming months with prices of commodities’ becoming unsustainable.

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