How will higher oil prices impact Kenya’s economy?
Key questions:
- How will higher oil prices affect disposable incomes, and how will the Central Bank of Kenya respond?
- With the recent renegotiation of the fuel deal with the Gulf states, how will higher oil prices increase the pressure on the shilling?
It’s 2022 all over again—oil prices are rising fast and are set to hit $100/barrel in the next few weeks.
Saudi Arabia and Russia have been implementing voluntary supply cuts amidst China’s sluggish demand growth, leading to an oil price surge. These supply cuts are expected to continue to match demand as OPEC+ widens the supply deficit aimed at keeping prices high.
As a result, the global economy is expected to heat up due to higher inflation caused by higher fuel prices.
It’s worth uncovering how higher oil prices will affect a non-oil-producing economy like Kenya’s as we consider the impacts on three interrelated economic metrics—disposable incomes, interest rates, and the value of the shilling.
Disposable incomes are no match for inflation
In August, Kenya’s inflation rate declined for the third consecutive month, settling at 6.7% to the satisfaction of the Central Bank of Kenya for achieving its inflation target of 5% ± 2.5%.
Even month-on-month inflation
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