Kenya Inflation Hits 28-Month High as Fuel Prices Surge

Kenya’s inflation rate climbed to 6.7% in May, marking its highest level in more than two years as the country grapples with the economic fallout of the U.S.-Israeli war against Iran [1]. The Kenya National Bureau of Statistics reported that the increase, up from 5.6% in April, puts the country near the upper limit of the government’s preferred 2.5% to 7.5% target range [4].

The surge is primarily driven by energy costs, which have rippled through the economy. Transport prices jumped 16.5%, food and non-alcoholic beverages rose 9.4%, and housing, water, electricity, and gas costs increased 3.4% [1]. Together, these categories account for 57% of the inflation basket, leaving households and businesses highly vulnerable to global oil supply disruptions [4].

Kenya’s Energy and Petroleum Regulatory Authority (EPRA) has raised pump prices for two consecutive months to account for the volatility in global markets [2]. Diesel prices reached a record 242.92 shillings per litre, a 23.5% increase, while petrol rose to 214.25 shillings [2]. These hikes follow the disruption of shipping through the Strait of Hormuz, a critical route for global crude exports that has remained largely at a standstill since the conflict began on February 28 [3].

The government continues to provide partial subsidies for diesel and kerosene to mitigate the impact, but petrol is no longer subsidized as authorities attempt to manage mounting public finance pressures [2]. Despite these efforts, the rising cost of living has effectively erased marginal pay increases offered to workers over the past five years [4]. Real wages have dropped from 62,256 shillings in 2020 to 56,566 shillings last year, according to Kenya Bankers Association estimates [4].

The economic strain has triggered strikes among transport operators and intensified public scrutiny over fuel management, including a separate investigation into a disputed, allegedly substandard fuel consignment [1]. Meanwhile, the Central Bank of Kenya faces a narrowing path for monetary policy; it is scheduled to announce its next interest rate decision on June 9, having left rates unchanged in April [4].

With inflation now exceeding the central bank’s July forecast of 6.2%, the primary question is whether the government will be forced to implement further tax relief or expand subsidies to prevent a broader slowdown in economic activity. The persistence of these high energy costs leaves the country’s largest economy in East Africa heavily exposed to a conflict unfolding thousands of miles away.