CBK forecasts fuel inflation to decline further

Central Bank of Kenya (CBK) expects local petroleum prices to drop in line with the recent sustained fall in global oil prices, taking pressure off fuel inflation despite the recently imposed value added tax (VAT).

Governor Patrick Njoroge said Wednesday that CBK data showed that fuel inflation had dropped for the first time since July 2017 and expects this trend to be sustained as the price of Murban crude oil supplied by Abu Dhabi National Corporation (Adnoc) comes down.

‘Fuel inflation came down to 16.5 percent in October—oil prices dynamics have changed dramatically since October,” he said.

The price of Murban crude a barrel averaged $88.27 on October 4 but had dropped to below $59.95 a barrel by Monday, a fall CBK considers “significant” and able to translate to reduced local prices.

The fall is hugely on fears of oversupply coinciding with reduced demand for the commodity.

“The decline in oil prices has benefited most emerging markets. It has given policy makers some breathing space,” he said.

Based on this and improved performance of tourism and exports such as tea, CBK expects current account deficit to narrow to five per cent of GDP, from an earlier target of 5.2 percent.

The CBK sees the current 13-month low global price easing pump prices that have been a pain to consumers since September’s introduction of VAT on petroleum.

Dr Njoroge said the degree of optimism in the economy was unusually low in September partly due to the VAT but has now rebounded.

In addition, he says further prospects for reduced energy prices in Kenya will stem from the investments in Garissa solar plant and Lake Turkana Wind power projects whose output will boost the national grid.

Garissa plant, with 54.6 megawatt (MW) capacity, was launched this month and the Lake Turkana project is already supplying most of the 310MW capacity.