Hope for lower cost of living as fuel prices slide to seven-month low

The government has handed Kenyans slight relief after reducing cost of fuel for the fifth consecutive month, with a litre of super petrol going down by Sh7.21 and that of diesel reducing by Sh5.

Kenyans hope the drop in prices will also translate into cheaper commodities.

In the new prices announced by the Energy and Petroleum Regulatory Authority (Epra), super petrol will retail at Sh199.15 a litre in Nairobi, while diesel will go down to Sh190.38 a litre. The cost of kerosene has reduced to Sh4.49 a litre and will for the next one retail at Sh188.74.

The reduction in pump prices, which is also the biggest in recent past, saw prices go down to levels last seen seven months ago and bring the cost of super petrol to under Sh200 a litre for the first time since August last year.

"In the period under review, the maximum allowed petroleum pump price for super petrol, diesel and kerosene decrease by Sh7.21 a lirte, Sh5.09 a litre and Sh4.49 a litre respectively.

The reduction has been largely on account of the strengthening shilling, which has in recent weeks gained to "Sh137 this week from an all time low of Sh160 at the start of the year," said Epra when it announced the price capping guide for the March-April pricing cycle.

Epra, which uses rates quoted by commercial banks when computing the retail prices, said the exchange rate had dropped to an average of Sh148 to the dollar in February down from Sh164 in January.

Another factor at play was the lower crude oil prices, which according to the data Epra used to tabulate the pump prices dropped to $77.68 (Sh10,8775) per barrel on average in February from $83.32 (Sh11,665) per barrel in January.

President William Ruto had earlier on Thursday told Kenyans to expect lower fuel prices. Addressing a rally, Ruto said the interventions that his administration had put in place to revive the economy had been working.

Other than the pump prices that he noted would come down, he said the results of his interventions saw the shilling rally in February major and has also registered some gains this week.

"I had asked you to give me an opportunity to strengthen our economy, it had been going in the wrong direction... I have made some progress and you can see that the shilling is strengthening against the US dollar. Later today, when fuel prices are announced later today (Thursday), you will see also that we are getting things to be in order when it comes to pimp prices," said Ruto.

Historical high

In four months, the price of super has reduced by Sh17 a litre, having come down from the historical high of Sh217.36. Diesel has shed some Sh15 a litre, reducing from a high of Sh205.47 in October.

The reduction in pump prices over the months was largely on account of dropping cost of crude oil in the international markets. The drop was however slowed down due to the shilling that had been on a steady decline throughout last and only started strengthening in February.

The declining cost of fuel is expected to reverse the decline in consumption of petroleum products. High costs had seen industries and motorists reduce consumption, according to data by the Kenya Bureau of Statistics (KNBS).

Over the six months to June, Kenyans consumed 1.09 million metric tonnes of diesel, which was a decline of 4.87 per cent when compared to the 1.15 million metric tonnes consumed last year over a similar half.

Diesel is critical for several sectors including transport, agriculture and manufacturing that heavily rely on the fuel to power their operations.

Consumption of super petrol dropped 3.6 per cent over the half to June, to 742,000 metric tonnes of petrol compared to 770,000 tonnes consumed over the first half of 2022.

The price reduction in recent months is however seeing a reversal of the trend, at least going by private sector activity. According to the latest Purchasing Managers' Index, business activity has in recent months expanded, driven by the drop in fuel prices, among other factors.

"Falling fuel prices were reportedly a key contributor to lower cost burdens," said the PMI by Stanbic bank, which tracks economic trends across different sectors and arrived at by talking to companies' executives.

"On the pricing front, firms noted both input and output price pressures easing due to moderating purchase costs, fuel prices declining, and the shilling appreciating during February. Staff costs were flat in February, although staffing levels increased for a second month running."