Kenya Raises Cost of Gasoline to the Highest in 10 Years

Costs climbed mainly because the authorities didn’t draw from a stabilization fund as they did in the past couple of months to keep rates steady regardless of international-oil price fluctuations. They previously used the fund to compensate oil marketers for cutting their margins and quoting lower prices.

“The stabilization process for the pump prices has not been effected this pricing cycle,” Daniel Kiptoo, the energy agency’s director-general said in a comment sent by his spokesperson. Kiptoo didn’t give further details.

The stabilization fund is, however, not sustainable in the long term, according to Renaldo D’Souza, head of research at Nairobi-based Sterling Capital. It might “be more useful to maintain strategic reserves assuming that global fuel prices are moving in one direction, upwards,” D’Souza said.

Inflation Risk
The cost of diesel increased 7.4% to 115.6 shillings a liter. Kerosene, used to cook in many homes in Kenya, rose 13% to 110.82 shillings a liter. 

The cost at which the fuel landed in Kenya fell slightly, according to the energy agency. However, the Kenya shilling depreciated by 1.1% against the U.S. dollar over the same period, it said. The unit was little-changed at 109.96 per dollar by 9:56 a.m. in Nairobi.

Fuel-price increases are among the top contributors to inflation in East Africa’s largest economy and have a snowball effect on the cost of food, transport, electricity and manufacturing.  Fuel inflation will come into focus when the monetary policy committee meets on Sept. 28 to review the benchmark interest rate. The rate has been at 7% for over a year.

“Net effect is inflation shall immediately go up,” Stephen Mutoro, Consumers Federation of Kenya’s secretary-general, said. “Kenya’s opaque and unpredictable fuel pricing will continue to hurt the economy and strain potential foreign direct investments into the country.”