Market News

Transport cost rises despite directive taming fuel prices

matatu (1)

Matatus along Accra Road, Nairobi. FILE PHOTO | NMG

Transport costs shot up by a quarter last month despite a decline in fuel inflation following State intervention to stop the rise in pump prices.

With fuel prices at a 10-year high, the Energy and Petroleum Regulatory Authority (Epra) refrained from a pump price increase for diesel despite a rise in landed cost, instead of maintaining a lower oil marketers’ margin of Sh11.72 for a litre of diesel instead of the normal Sh12.36.

The price of diesel has a huge impact on the cost of goods and personal budgets, given that it is the common fuel for public transport vehicles and goods transporters.

Analyst at NCBA #ticker:NCBA said in a note that the easing of fuel inflation from 14.8 percent in April to 14.4 per cent in May reflected the slow rise in fuel prices as a result of the temporary measures, but is at a risk of rising further if global prices continued to rise.

“This reflected a slower increase in pump prices in the period. Even then, the price pressures could remain in double digits due to low base effects and potential upside on global crude oil prices as demand rises,” said the NCBA analysts.

“This may sustain upward pressure on transport costs. In May, matatu/bus fares rose by 25.4 percent.”

Generally, inflation remained tame rising slightly to 5.87 percent in May from 5.76 percent in April on the lower fuel prices and slow demand.

This was despite a rise in food inflation from 6.4 percent to seven percent, due to higher cost of cooking oil, beef and cabbage, but the analysts expect the rise will be contained by favourable weather conditions that will ensure ample supply of fruits and vegetables.

“The risk of inflation accelerating beyond the 7.5 percent upper target remains highly unlikely,” NCBA said.