Fuel inflation has hit a 12-month high on thirteen-fold increase in the Petroleum Development Levy, becoming the key driver of overall inflation as cost of food continues to comes down.
Data from the Central Bank of Kenya (CBK) shows that fuel inflation rose for the fourth straight month to hit 8.6 per cent in July, up from 4.5 per cent in March.
This is the first time since June last year for fuel inflation to be above food inflation, CBK data shows.
The latest fuel inflation figure is the highest since July last year when it stood at 9.94 per cent and came on the back of a 13.5 times rise in the Petroleum Development Levy from Sh0.40 to Sh5.40 per litre.
Diesel and petrol prices last month jumped by Sh17.30 and Sh11.38 per litre, respectively—the fastest single month jump in 13 years—blunting the pace of easing cost of living.
Food inflation in July eased to 6.6 per cent— a 14-month low— on account of reliable rainfall and improved supply of food across markets following relaxation of Covid-19 travel restrictions. The figure was at 3.69 per cent in May last year.
The fall in food inflation has helped bring down overall inflation to 4.4 per cent, being the lowest since the baskets for measuring cost of living were changed in February.
The costs of energy and transport will now be of concern to the economy given that it affects the pricing of goods and services in many other sectors such as transport, manufacturing and agriculture.
Producers of electricity and manufactured goods for instance factor in the higher cost of petroleum in their costing, unleashing pricing pressure across the economy.
The economy also uses diesel for transportation, power generation and running of agricultural machinery such as tractors with a direct impact on the cost of farm produce.
CBK said in last week’s monetary policy committee statement that it expects overall inflation to remain within the target range of 2.5 to 7.5 per cent in the near term.
“This is supported by lower food prices, the impact of the reduction of Value Added Tax and muted demand pressures,” said CBK.
The last time inflation breached the government target was in August 2017 when it was at 8.04 per cent.