Why you are yet to feel impact of lower fuel, power prices

Fuel and power prices have dropped significantly over the last year. 

However, consumers are yet to feel the ripple effect of a reduction in the two critical factors of production through cheaper goods and services in the economy.

This is due to a mix of factors, including a lag by industries to pass on the benefits of lower energy prices amid shrinking wages and salaries among a majority of Kenyans. 

Analysts also note that other factors might be at play, pushing up the cost of doing business, which, in turn, has seen companies hold back from lowering the cost of their products and services.

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Fuel prices too have been on the decline for more than a year, save for January this year when the pump prices of diesel went up by Sh2 per litre.

Before this slight hike, the cost of diesel had come down by Sh37.41 over 14 months, dropping from the historical high of Sh205.47 per litre seen in Nairobi in November 2023.

Petrol has equally dropped by a large margin of Sh36 per litre from a high of Sh217.36 witnessed in October and November 2023.

“Fuel inflation declined significantly from the peak in November 2023 due to easing electricity and pump prices. It declined to -1.7 per cent in October 2024 from 15.5 per cent in November 2023,” said the Central Bank’s Monetary Policy Committee in its b-annual report in October last year.

“The appreciation of the exchange rate resulted in favourable pass-through of international oil prices resulting in lower domestic pump prices. Additionally, it resulted in a significant reduction in electricity prices as the Foreign Exchange Rate Fluctuation Adjustment (FERFA) on electricity prices declined from a peak of Sh 6.46 per kilowatt hour in January 2024 to Sh1.2 per kilowatt hour in October 2024.”

However, this decline in the cost of the two essential items may not have had a huge impact in terms of savings and increasing disposable money for Kenyans.

This has seen senior government officials, including cabinet secretaries, at pains to explain why Kenyans do not have money in their pockets despite the supposed improvement of the economy. 

Among them is Treasury CS John Mbadi, who two weeks ago, called a briefing to explain the measures the government is putting in place to put money in the pockets of Kenyans.

According to Mbadi, this includes pushing banks to lower the cost of credit and the planned payment of pending bills.

Ken Gichinga, chief economist at Mentoria Economics, said other factors limiting the impact that lower fuel and power prices might have on households are at play.

These include firms that are yet to recover from the harsh economic times experienced in the last few years.

“A drop in fuel prices has contributed to lower inflation. However, the labour market continues to be weak and disposable incomes have greatly reduced, thus putting household budgets under pressure,” he said.

A consumer lobby noted the sharp drop in both the cost of fuel and electricity should have translated into lower fares for Kenyans who use public service vehicles and lower retail costs for manufactured goods.

Consumers Federation of Kenya Secretary-General Stephen Mutoro said different players across different industries should pass on the benefits of lower cost of operations to Kenyans.

“It is not too much to ask for lower costs. It is not only logical but also fair and just,” he said, adding that even when there are other cost considerations that the industries might want to cite for retaining high costs, the decline in the cost of fuel and electricity has been steep.

“The industries and PSV operators might want to say that other costs have gone up, but it cannot be the same because those other costs were also up one year ago. If we had fair business practices within the marketplace, we could have a significant ploughing back to the consumers.”

He noted that different industry players have in the past been quick to increase costs when fuel and other factors go up but rarely lower costs when the cost of production goes down.

“If prices go up because factors that are forcing us to price higher are going up, then we should also have a culture whereby when these factors come down, then we also climb down in terms of prices,” said Mr Mutoro, adding that lowering costs would also have the benefit of spurring spending among consumers.

“Passing on the savings that the businesses are making due to lower cost of doing businesses, the uptake will also be more… they will in a way spur demand. We would expect this in terms of commuting and retail prices of commodities across the board.”