ENERGY

High fuel costs negatively impact cost of living

High fuel prices, combined with economic downturn may spell further woes for the ordinary Mwananchi.

In Summary

•Where fuel prices rise, it is expected that the costs of energy, transportation, consumer goods and services will similarly experience an untick.

•From an economics perspective, prolonged reduced consumer spending, whether resultant of the economic downturn occasioned by the Covid-19 pandemic, or increasing fuel prices, is a sign of worst times ahead.

A petrol station attendant fuelling a car/
A petrol station attendant fuelling a car/
Image: FILE

Merely a month after the Energy and Petroleum Regulatory Authority (EPRA) reviewed the prices of fuel upward for the period 15 March to 14 April 2021, a further increase appears to be on the horizon.

Based on media reports, EPRA may consider a further increment in its 15 April 2021 to 14 May 2021 review, likely pushing the pump prices of petrol, diesel and kerosene to historic highs.

Unfortunately, historically high fuel prices, combined with the current economic downturn wherein consumer purchasing power is diminished, may spell further woes for the ordinary Mwananchi.

As discussed previously on this column, the rise in fuel prices is likely to have a trickle-down effect on the cost of living experienced by the ordinary Mwananchi.

Indeed, where fuel prices rise, it is expected that the costs of energy, transportation, consumer goods and services will similarly experience an untick.

We have already witnessed reports of Matatu owners threatening to hike fares in view of the increased fuel costs, driver-partner’s in the multitude of ride-sharing platforms available within the Kenyan market threatening embark on a go-slow in view of the same, as well as an increase in prices of ordinary commodities such as bread, milk and flour.

All these considered translate to less income in the hands of the ordinary Kenyan and consequently reduced consumer spending.

From an economics perspective, prolonged reduced consumer spending, whether resultant of the economic downturn occasioned by the Covid-19 pandemic, or increasing fuel prices, is a sign of worst times ahead.

Indeed, the same is often considered a herald of depressed economic growth. In the Kenyan context, this may lead to decreasing demand for ordinary goods and services, which in turn may have a negative impact on tax revenues generated and remitted to the Government’s coffers.

From a business perspective, increased costs of fuel will likely translate to reduced investments and plateaued growth on the back of increased business costs.

This is particularly true to businesses engaged in energy-dependent industries such as manufacturing, transportation and construction.

An increase in the cost of fuel will have a direct impact on the cost of electricity, thereby increasing the cost of running energy-dependent machinery and equipment.

While energy-dependent industries may be most vulnerable to fuel increases, that is not to say that other businesses are safe.

To the extent that economic and business sectors are highly interdependent, increases in costs on one end are likely to have a direct impact on the other end of the spectrum.

Noting that the current economic situation is neither favourable nor sustainable, whether, to the ordinary Mwananchi or the business community at large, it is high time that concrete steps are taken to reign in the cost of living as well as costs of doing business.

Karen Kandie – MD IDB Capital

The article was submitted before the fuel price review