Fuel inflation hits two-year high on higher crude price

Fuel inflation has hit a two-year high of 13.8 per cent, negating the effect of the moderation in food prices in the overall inflation basket to keep cost of living high.

Data from the Kenya National Bureau of Statistics (KNBS) and the Central Bank of Kenya show that this is the biggest increase in annualised fuel inflation since December 2018.

The surge in fuel cost is attributed to an increase in the price of crude oil, having gone up to $65.90 (Sh7,203) at the end of last week from $51.70 (Sh5,677) at the beginning the year.

Analysts say the rise in fuel costs signals increased in costs for the majority of consumer products and services, due to transport costs being added onto the final pricing of products.

“The oil prices will continue to put pressure on inflation in the short-term because of the increase in prices of crude oil by Saudi Arabia—Opec’s largest producer—resulting from production cuts in February and March. This coupled with a weak shilling will raise the cost of imports, driving inflation upwards,” Sterling Capital analyst Elizabeth Njenga said.

Fuel comprises the second largest weight on Consumer Price Index at 14.61 per cent after food and non-alcoholic beverages which account for 32.91 per cent.

The higher fuel inflation was a major driver of overall inflation last month to a 10-month high of 5.78 percent.

The month-on-month transport Index increased by 2.33 percent, mainly due to a rise in the prices of diesel and petrol by 5.66 per cent and 7.57 percent, respectively.

On the other hand, food inflation stood at 6.9 per cent last month, down from 7.4 per cent in January. Core inflation (non-food-non-fuel) also declined to 2.2 per cent last month from 2.4 per cent in January, indicating that demand side inflationary pressure remains muted in the economy.