The Central Bank of Kenya (CBK) is forecasting inflation to hit the 6.2 percent mark in July, in the wake of costly fuel, further worsening workers’ purchasing power.
The banking regulator reckons that a prolonged conflict in the Middle East will push the cost-of-living measure to its highest level since February 2024.
The blockade of fuel in the Gulf following the US-Israeli war on Iran has seen pump prices hit record levels across the globe, with a litre of diesel jumping 24 percent to Sh206.97 in Kenya for the month to May 14.
This will put pressure on inflation and hurt workers’ purchasing power in an economy that has delivered negative real wages for five years in a row.
‘With the oil price shock and assuming that the conflict lasts for the next three months, the forecast overall inflation does go above the five percent mid-point, peaking in July 2026 after which it progressively declines,’ CBK Governor Kamau Thugge said last week ahead of Tuesday’s fuel price review.
The closure of the Strait of Hormuz, a narrow waterway in the Middle East through which up to one fifth of global fuel supplies passes, has disrupted oil supply chains, resulting in higher prices at the pump.
The aftermath of the record jump in fuel prices is set to push the inflation from 4.4 percent in March.
Fuel prices make a big contribution in Kenya as it relies heavily on diesel for transport, power generation and agriculture, while kerosene is used in many households for cooking and lighting.
The CBK expects inflation to rise above the targeted midpoint of five percent in coming months, peaking at 6.2 percent in July, if the war lasts to at least June.
Matatu operators on Wednesday reckoned that its members will increase fares by 25 percent following the spike in fuel prices.
‘Most matatus use diesel. We’ve consulted widely with our members and agreed on increasing fares by 25 percent,’ said Albert Karakacha, the chairman of the Matatu Owners Association.
Kenya targets an inflation rate of between 2.5 percent and 7.5 percent, which the government assesses as the most appropriate rate of change in prices to not only deliver economic growth but also contain a rise in consumer prices.
‘Overall inflation is expected to remain within the target range in the near term, and this would be supported by appropriate monetary policy actions, expected stability in food prices owing to favourable weather conditions and the continued stability of the exchange rate,’ Dr Thugge added.
Salary rises in 2024 lagged inflation for the fifth year in a row, weakening workers’ purchasing power and their standards of living.
Inflation-adjusted real wages in Kenya continued to drop after recording a decline of 0.3 percent last year as employers remain reluctant to offer bigger pay rises to cover for rising cost of commodities.
This is the fifth year in a row that workers have endured falling real wages, including a negative 4.1 percent in 2023.
The CBK’s March 2026 market perceptions survey and agriculture sector survey showed that inflation expectations will hold in the target range in coming months but noted upward pressure due to higher energy prices.
The apex bank paused its rate easing cycle for the first time in nearly two years, adopting a wait-and-see approach on where consumer prices move next.
The CBK deploys its interest rate setting mandate to counter inflationary pressures. Kenya’s benchmark interest rate fell from 13 percent in August 2024 to 8.75 percent at present, supported largely by a slowdown in the change of consumer prices and a stage exchange rate.
The Kenya shilling has continued to trade on a narrow-bound range against the US dollar, changing hands at between Sh129 and Sh130, even after the onset of the US-Israeli war on Iran at the start of March.