Broken promise: Double-digit pump price hikes push Kenya's inflation to the brink

President William Ruto's pledge to shield Kenyans from the global oil shock has collapsed after the energy regulator imposed double-digit fuel price increases.

The price hikes are expected to push the cost of living close to the government's inflation ceiling barely ten months before a General Election that the president has framed as a referendum on his economic agenda.

The Energy and Petroleum Regulatory Authority (EPRA) on Wednesday raised the price of super petrol by Sh12.93 per litre, diesel by Sh9.90 and kerosene by Sh28.49, effective October 15. In Nairobi, diesel, the fuel that powers more than 90 per cent of the nation's matatus, buses and freight trucks, now retails at Sh227.76 per litre.

The increases come barely five months after Ruto sat down with transport operators at State House Mombasa and explicitly directed that diesel prices be reduced by Sh10 in the June-July pricing cycle. Albert Karakacha, president of the Matatu Owners Association, now says the Ruto pledge has been broken.

"We sat with him as transport sector stakeholders. He assured us that diesel, which is the backbone of public transport, would be protected. Today, diesel is up by Sh9.90 per litre. That promise has been broken. What are we supposed to tell our members?" Karakacha said.

The political damage has been immediate. Former Deputy President Rigathi Gachagua claimed, even before the official announcement, that the hikes followed a direct order from Ruto to raise cash, dismissing EPRA's explanation of global market pressures as "pure lies and conmanship."

But the economic fallout from the fuel shock arrives at the worst possible moment for household budgets.

Kenya's annual inflation rate rose to 6.8 per cent in September, up from 6.6 per cent in August and the highest reading since January 2025. That is now perilously close to the government's upper target of 7.5 per cent.

The September inflation data already showed the pressure building. Transport costs surged 15.6 per cent year-on-year, while food and non-alcoholic beverages, which carry the heaviest weight in the consumer basket, rose 9.5 per cent. Diesel prices alone were up 26.9 per cent compared with a year earlier.

Inflation is the rate at which prices for goods and services rise over time. An annual rate of 6.8 per cent means the average Kenyan household is paying 6.8 per cent more for the same basket of goods than a year ago. Core inflation, which strips out volatile food and fuel prices to reveal underlying price pressures, rose to 4.0 per cent from 3.4 per cent in August.

Economists warn that the October fuel review will push headline inflation past the 7.5 per cent ceiling in the coming months. The knock-on effects are already visible, with manufacturers warning that production costs could rise by more than 10 per cent and transport operators announcing immediate fare increases.

Karakacha said parents who had budgeted Sh5,000 for school transport could now need as much as Sh7,000. "We are businessmen, we will pass it on to the consumer. We cannot be the ones cushioning the expenses while making losses," he said.

EPRA Director-General Edward Kinyua said the government had exhausted the Petroleum Development Levy Fund, the pool of money collected from fuel sales specifically designated to cushion consumers when global prices spike.

The Petroleum Development Levy (PDL) is a charge added to every litre of fuel at the pump. It functions as the only line item in Kenya's fuel pricing formula that reduces what consumers pay. When import costs surge, the government can draw down the PDL to absorb part of the increase rather than passing it entirely to motorists.

More than Sh24 billion was withdrawn from the fund between April and June, nearly the entire annual collection of Sh26 billion. In the April-May and May-June pricing cycles, the government committed a combined Sh28.19 billion in fuel price support through direct subsidies and tax relief, including forgoing Sh8.02 billion in VAT revenue in the May-June cycle alone.

Parliament has moved to extend the reduced 8 per cent VAT rate on fuel for another 90 days, with the option of a further three-month extension.

But even with the VAT relief factored in, prices still rose sharply, signalling how severe the external shock has become. The average landed cost of imported super petrol rose 11.81 per cent from August to September, while diesel costs climbed 11.32 per cent.

The current crisis is not the first time Ruto has failed to deliver on fuel promises. During the 2022 campaign, he promised to eliminate the 16 per cent VAT on petroleum products, arguing that taxes constituted 50 per cent of the pump price. He also pledged to bring petrol prices down to Sh70 per litre, a figure that now appears impossible.

In his first major policy announcement after taking office in September 2022, Ruto scrapped the fuel subsidy instead of implementing the tax cuts he had promised. By 2024, petrol prices had exceeded Sh200 per litre, more than double his campaign pledge.

The political calendar adds urgency. Kenya's next General Election is scheduled for August 2027, less than a year away. Ruto has begun framing the contest as a choice between his "Bottom-Up Economic Transformation Agenda" and what he characterises as an opposition lacking a coherent alternative. He has recently adopted a new slogan, "Usawa ni Sawa, Mbele Pamoja" (Equality is Fair, Forward Together), shifting from the "Hustler Nation" narrative that propelled him to power.

But analysts question why the state is not protecting Kenyans in line with its own promises, especially when other governments have deployed a wider array of tools.

In South Africa, the government cut the general fuel levy by R3 per litre in April, then increased diesel relief to R3.93 per litre, effectively reducing the diesel levy to zero for May. At current exchange rates, that is equivalent to a reduction of roughly Sh23 per litre, rising to about Sh30 per litre for diesel. The estimated cost of the temporary relief from April to June was R17.2 billion in foregone tax revenue, approximately Sh132 billion.

In Europe, Spain committed €3.5 billion to reduce energy VAT, about Sh530 billion. Germany allocated €1.6 billion to lower fuel duties, roughly Sh242 billion. Italy extended a 20 per cent cut in excise taxes on fuel. The European Commission estimated total budgetary measures at €14.5 billion as of May, approximately Sh2.2 trillion, potentially rising to €38.6 billion, or Sh5.8 trillion, if extended through year-end.

In Asia, the Philippines launched its UPLIFT framework, delivering fuel subsidies to nearly one million public utility vehicle drivers and cash transfers to more than four million low-income households. South Korea reintroduced petrol price ceilings for the first time since the 1997 Asian financial crisis. India maintained its E20 ethanol blending status, consuming 10.55 billion litres of fuel ethanol in 2025 as an energy security measure.

The African Development Bank approved a $5.1 billion Global Energy and Fertiliser Crisis Response Framework in September, equivalent to approximately Sh660 billion. The package mobilises $4.1 billion, or about Sh530 billion, in additional lending and $960 million, or roughly Sh124 billion, from the African Development Fund. The framework emphasises targeted social protection over broad subsidies to avoid benefiting wealthier households.

Pakistan took a different approach: it allowed retail fuel prices to rise sharply to signal scarcity while layering targeted relief on top, including subsidies for motorbike users, small farmers, freight operators and public transport. The relief is disbursed through existing systems. This preserves cost-reflective pricing while cushioning the most vulnerable.

The contrast with Kenya is stark. While other nations deployed regional financing, targeted transfers and strategic reserves, Kenya's stabilisation fund ran dry, and the full cost of the global shock is now being passed on to consumers.

For the majority of Kenyans, the upcoming holiday festivities might feel more like a last meal for an inmate on death row.

With the latest fuel increase, Kenyans are now facing runaway inflation by the time the festive season arrives, a situation that could be worsened by the impending El Niño and empty pockets.

The shock is already being felt across the economy, with public service transport operators announcing a 10 per cent increase in fares. This comes just as schools are closing and families are considering travelling home for the long holidays.

“As the association we have consulted widely and told our members to increase by 10 per cent. We are in business and we need to make a profit,” said Karakacha.

The increase will surely seep into the inflation figures, given that transport and food are the two major components driving the country's inflation figures, according to the Kenya National Bureau of Statistics (KNBS).

In June 2022, when Kenya's inflation teetered above the 7.5 per cent upper limit, EPRA had just increased the price of fuel by Sh9.

Petrol was retailing at Sh159, diesel at Sh140 and kerosene at Sh127. This was with the help of a subsidy that held prices steady, as the regulator would otherwise have increased them to as high as Sh184.

Inflation then broke through the 7.5 per cent ceiling to settle at 7.9 per cent that month. By October, inflation had reached 9.6 per cent. It eased to 9.5 per cent in November and closed the year at 9.1 per cent in December.

This runaway inflation was also being fuelled by the drought the country was experiencing at the time. The price of a two-kilogramme packet of maize flour was above Sh200. The price of a two-kilogramme packet of maize flour now stands at Sh152.

A similar scenario could unfold again, considering that the weather forecaster has also warned that El Niño could cause a dry period instead of the expected rains.

The Matatu Owners Association is demanding the reintroduction of fuel subsidies or the creation of a stabilisation fund and has called an urgent meeting to decide its next move.

Karakacha also accused the government of failing to deliver on other promised measures, including tax relief on electric vehicles, batteries and charging infrastructure.

Ruto has yet to respond publicly to the operators' demands. But with inflation within touching distance of the 7.5 per cent ceiling, transport costs cascading through the economy and voters heading to the polls in less than a year, the political pressure and economic fallout are expected to intensify in the coming weeks.