Household budgets to face a squeeze as fuel, electricity costs surge
Fuel prices at a petrol station in Nyeri town on September 15, 2022. Households to dig deeper into their pockets to pay for transport and other basic needs as inflation accelerates following the increase in petroleum costs.
What you need to know:
- Consumer prices are set to surge steeply, forcing households to dig deeper into their pockets to pay for transport and other basic needs.
- Most low-income households will bear the brunt of increased consumer prices as they spend more of their income on food, energy and manufactured products.
- Last week, Epra also raised electricity costs by 15 per cent following adjustments on three pass-on costs, including fuel, forex, and inflation adjustments.
Consumer prices are set to surge steeply, forcing households to dig deeper into their pockets to pay for transport and other basic needs as inflation accelerates following the state’s twin increase in petroleum and electricity costs.
With inflation already hounding the economy before the record price adjustments on fuel costs on Wednesday, most low-income households will bear the brunt of increased consumer prices as they spend more of their income on food, energy and manufactured products.
On Wednesday, the Energy and Petroleum Regulatory Authority (Epra) raised fuel prices by up to 18 per cent, with a litre of super petrol rising by Sh20.18 to sell at Sh179.3, that of diesel from Sh140 to Sh165, and kerosene by 15.6 per cent to Sh147.94.
Electricity costs
Last week, Epra also raised electricity costs by 15 per cent following adjustments on three pass-on costs, including fuel, forex, and inflation adjustments.
This pushed the cost of a kilowatt hour unit (kWh) to Sh25.3 for domestic consumers who use more than 100 units a month.
The changes mean that, with Sh1,000, consumers on the over 100kWh tariff would now get 39.5 units of power, down from the 45.7 before the review.
This will have a direct effect on the cost of agricultural and industrial production, transportation, and cost of feed, all of which will reflect on consumer prices for food and manufactured goods and raise the overall cost of living. Consumers could find themselves spending over 30 per cent of current prices on different products, say analysts.
High fuel cost is expected to raise manufacturers’ out costs, “resulting in more pain for consumers.
This is because the price of fuel cascades across the value chain,” Kenya Association of Manufacturers Head of Policy, Research, and Advocacy Job Wanjohi said.
Consumers in August bore the sharpest rise in the cost of living in more than five years, hurt by a failed maize flour subsidy, rising fuel costs, and a weakening shilling.
Inflation rate
The country’s inflation rate hit a 62-month high of 8.5 per cent on increasing prices of food, energy, transport, housing as well as home appliances and equipment, data by the Kenya National Bureau of Statistics showed.
The August rate of inflation was the highest since June 2017 when it hit 9.21 per cent.
Consumers on average spent 15.3 per cent more in August on foodstuffs than a year ago, while transportation costs were up 7.6 per cent, according to the Kenya National Bureau of Statistics.
The sharp rise in August inflation was linked to expensive maize flour which cost 37.9 per cent more per kilogramme at Sh78.40 on average compared with last year, while the price for loose maize grain jumped 35.8 per cent to Sh74.19 on average.
Other basic commodities whose prices shot up significantly were laundry soap, which cost 36 per cent more to Sh168.20 per 800-gramme (g) bar and detergent which increased 21.1 per cent to Sh201.89 per 500g on average.
Manufacturers say that, unless the government suspends some of the taxes to shield the sector from the high cost of fuel, consumers should brace for high prices.
With the new record prices of fuel of electricity and fuel, inflation is certain to worsen this month.
“The government should consider eliminating or reducing some of the taxes on fuel while eliminating the subsidies,” Mr Rajan Shah, the chief executive officer of grain milling firm Capwell Industries Limited, said. Public transport operators are already warning of fare adjustment.
“This is a massive increment that cannot be cushioned, it’s not a cost any business can cover. We will have to increase fares equivalent to the rate at which fuel price has increased,” Matatu Owners Association National Chairman Simon Kimutai said. He urged the state to consider subsidies to the transport sector.
Fuel is also critical for the agriculture sector where it drives machinery for land preparation and harvesting as well as transport.
Consumers could also face further pain from October 1 when the Kenya Revenue Authority adjusts excise taxes for products including regular and premium fuel, kerosene, and industrial diesel which manufacturers rely on.
May trigger outrage
The taxman has announced a 6.3 per cent increase in excise duty on the products effective next month in line with average annual inflation.
This will see manufacturers pass on the additional cost of the commodities to consumers in what may trigger outrage by most households that are yet to recover from the effects of the Covid-19 pandemic, which triggered layoffs, pay cuts, and business closures.
The adjustment is in line with the law that demands that excise duty be revised upwards in tandem with the cost of living measure or the average rate of inflation in the 12 months through June.
The country has also been faced with poor rains affecting agricultural productivity this year and it’s just a matter of time before Kenyans are faced with a shortage of key food commodities such as the staple, maize.
This will turn the country back to importation, which leaves it at the mercy of global supply chain shocks and foreign exchange vulnerabilities amid a weakening currency, which will leave the cost of commodities high.
