Kenya's Fuel Prices Drop to Lowest Point Since Early 2022

The cost of fuel has decreased to the lowest point in 19 months due to lower import prices, which is likely to further reduce the pressure on inflation.

The Energy and Petroleum Regulatory Authority (Epra) reports that super petrol prices in Nairobi have decreased by Sh8.18 per litre to Sh180.66, while diesel and kerosene prices have also seen substantial reductions. This marks the most considerable drop since May 2020. The impact of fuel prices on inflation is particularly noteworthy, given the crucial role of diesel in transport, power generation, and agriculture, as well as kerosene's importance as a primary energy source for many households.

This price reduction is especially significant as it coincides with the government's decision to forgo subsidies on petroleum products due to lower import costs. Inflation in Kenya recently hit its lowest point since December 2012, at 3.6%, comfortably within the government's target range of 2.5% to 7.5%. This decrease can largely be attributed to declining fuel prices, which have a substantial effect on the overall cost of living. Epra highlights that the average landed cost of imported super petrol fell by 8.59% in September, with diesel and kerosene prices also decreasing significantly. While the price reduction is promising, it could have been more substantial if not for a High Court ruling regarding the road maintenance levy.

The court froze an increase from Sh18 to Sh25 per litre following concerns about public participation in the decision-making process. As a result, motorists in various regions will experience varying petrol and diesel prices, with some areas still seeing prices as high as Sh194.66. The decrease in fuel prices is expected to have broader implications across various sectors of the economy. Reduced transportation costs are likely to lead to lower prices for goods and services, making basic needs more affordable for households. The manufacturing sector, which relies heavily on fuel for production and logistics, stands to benefit from lower operating expenses.

This may encourage producers to pass on cost savings to consumers, further contributing to downward pressure on inflation. With Kenya's electricity grid relying on diesel and heavy fuel oil for about 10% of its electricity generation, reduced fuel prices might translate into decreased electricity tariffs. This could offer relief to manufacturers who depend on electricity for production, potentially stimulating economic growth through increased production and employment opportunities.