Kenya increased the price of gasoline to the highest in more than a decade following a tax hike, adding to inflationary pressures in the East African nation.
The price of gasoline jumped 7.4% to 195.53 shillings ($1.39) per liter in the nation’s capital, Nairobi, the Energy and Petroleum Regulatory Authority said in a statement on Friday.
The energy regulator announced the new prices to reflect changes in this year’s finance legislation, including the doubling of the value-added tax on petroleum products to 16%, effective July 1. That’s despite a High Court order issued moments earlier, temporarily halting the implementation of the Finance Act following a petition against it.
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A representative of the regulator didn’t immediately respond to a call seeking comment about the new prices and the court order on Friday.
The cost of diesel also increased 7.4% to 179.67 shillings per liter, while kerosene, used for cooking and lighting in many homes in Kenya, rose by a similar margin to 173.44 shillings in Nairobi. The new rates will be in place until July 14 when the energy regulator will hold a scheduled monthly meeting to review the prices.
It’s the highest consumers in Kenya have had to pay for fuel since authorities began setting petroleum prices in 2010.
Higher fuel prices may spur the Central Bank of Kenya to act after the monetary authority raised the benchmark interest rate by 100 basis points at an unscheduled meeting on June 26. The Kenyan shilling has fallen 12.2% against the dollar since January, adding to inflationary pressures.
Inflation slowed slightly to 7.9% in June but has remained outside the central bank’s target range of 2.5% to 7.5% for more than a year.
The measure will likely accelerate in July but is expected to ease below the upper end of the target band and be “firmly within” the range by August or September, according to central bank Governor Kamau Thugge.
While the 2023-24 finance law raises tax on fuel, it also has “offsetting factors” including the removal of value-added tax on cooking gas, Thugge said on Tuesday. The government has also reduced the Railway Development Levy, used to fund operations of a Chinese-backed railway, to 1.5% from 2% of the value of cargo.
The central bank will likely maintain a tight monetary-policy stance, according to Mpho Molopyane, an economist at Absa Group Ltd., who sees the benchmark interest rate going up by a further 100 basis points by the end of the year.
The tax on fuel and currency deprecation means “inflation will remain sticky for longer and revert to the central bank’s target range much later than we initially anticipated,” she said in a note.
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