Middle-class households have been forced to raise their average monthly electricity consumption budgets by more than Sh3,000 after the government retired a subsidy amid a sharp slide in the value of the shilling.
The average cost of 200 kilowatt-hours (units) of electricity has climbed by Sh3,073.88 since the subsidy was retired in December 2022, ranking it among the most painful cost headaches in the past two years.
Kenya National Bureau of Statistics (KNBS) data shows consumers on average paid Sh7,447 for 200 kWh in January, a surge of 41.08 percent over Sh5,278.44 in January 2023 and 70.29 percent over Sh4,373.12 when the cushion was in force.
The pinch is even sharper on low-income homes using a maximum of 50 units of electricity, which has nearly doubled (98.16 percent jump) to Sh1,579 on average from Sh796.83 in January 2022.
The William Ruto administration dropped a 15 percent cushion on power bills implemented by its predecessor, in December 2022 and reviewed 30 to 100 units by 18.69 percent to Sh26.10 per unit from April 2023.
With variable surcharges such as fuel cost charge (FCC) and foreign exchange rate fluctuation adjustment (Ferfa) rising, electricity has emerged as one of the biggest drivers of the cost of living in the past two years.
FCC is remitted to power producers who use diesel to generate electricity, while Ferfa helps Kenya Power to cover repayment of foreign loans and power purchase costs in line with the shilling-dollar exchange rate.
The KNBS data shows power bills, alongside higher cost of education and some foodstuffs, were the biggest drivers of consumer prices in January.
Inflation — a measure of the increase in the cost of goods and services over the previous year — increased to 6.9 percent from 6.6 percent in December.
The rise in consumer prices, the fastest since last October, came at a time schools re-opened for the new term, putting pressure on households to pay school fees and buy education materials and uniforms.
“The year-on-year inflation for education services, which follows a normal seasonal trend, was 2.8 percent. There was an increase of 1.8 percent in the indices for education services between December 2023 and January 2024, occasioned by a rise in tuition fees,” KNBS managing director Macdonald Obudho said in a statement.
Average food prices, which have in recent months benefited from El Nino rainfall, also rose 7.9 percent year-on-year, the highest rate since last September.
Some of the food items whose costs climbed fastest are carrots which jumped 57.23 percent year-on-year to Sh108.14 per kilogramme on average, while prices of onions jumped by half to Sh150.4 per kilo.
The upward pressure on prices of foodstuffs saw the cost of eating out increase 4.3 percent year-on-year in January compared with 3.8 percent during the festive month.
The renewed consumer price pressure is likely to prompt the Central Bank of Kenya to leave the base interest rates intact at 12.5 percent when its Monetary Policy Committee meets on February 6.
Increasing the key lending rate makes borrowing more expensive as banks use the tool as a base on which they load their margins and risk profile of individuals when pricing loans.
The resultant higher cost of loans is expected to prompt consumers to cut or postpone expenditure on luxury, thus helping to rein in inflationary pressures from the demand side.
A consensus forecast on inflation from 14 global banks, consultancies, and think tanks shows average prices of goods and services are likely to average 6.5 percent in 2024, slower than the 7.7 percent average for last year.
“A small uptick in oil prices will add to cost pressures, but food prices (the largest component of the consumer price index) will rise at a much slower pace in 2024, given the emergence of the El Niño weather system, which typically leads to wetter weather and higher farm production in East Africa,” analysts at Economist Intelligence Unit wrote in an economic outlook report by Barcelona-based FocusEconomics.
“Another inflation dampener in 2024 will be a slower pace of shilling depreciation. Steep tax rises in 2023 will drop out of the inflation equation during the second half of 2024, and future tax increases will be of a smaller magnitude.”
