By Macharia Kamau

An inevitable increase in electricity tariffs is among the major threats to the stable cost of living in the country this year

Analysts at the African Investments Bank (AIB) Capital say the planned review of the power tariffs could see a reversal in the rate of inflation that has largely been on a downward trend over the last year.

In its monthly market report last week, AIB Capital noted that with the electoral process no longer a threat and the commencement of rains guaranteeing a degree of food security in the country, the electricity costs are the major factor to watch. The planned revision could push up inflation that slowed down in March.

Marginal drop

“Inflation figures for March showed a marginal drop to 4.11 per cent from 4.45 per cent in February. However, the current easing trend is threatened by a planned increase in electricity tariffs,” said AIB Capital.

Electricity firm Kenya Power has proposed a hike in tariffs that is awaiting approval from Energy Regulatory Commission (ERC). ERC said it is just a matter of weeks before it approves the plan and is currently weighing stakeholder contribution before it determines the margins by which it would increase the tariffs.

Kenya Power had proposed a phased approach to increasing electricity rates that would see the fixed rate for domestic consumers rise from the current Sh120 to Sh300 by 2016.

Commercial users will also be affected, and AIB Capital warns that the planned hike would result in higher input costs for businesses that would be passed to the consumer.

Fuel costs

The power firm has also increased foreign exchange and fuel costs that do not require approval by ERC. It is the second time in as many months that Kenya Power has increased the two costs.

In a gazette notice Friday, Kenya Power increased the foreign exchange fluctuation charge to Sh1.62 and the fuel cost charge to Sh6.21 per unit that would be factored in power bills for March. This is an increase from the Sh1.04 forex charge and Sh5.38 fuel cost in February. Last month, electricity costs went up 13.12 per cent.

The dangers of rising inflation might however be contained by the resumption of normalcy in the country following the peaceful completion of the election process as well as the on-going rains. The meteorology department has warned of poorly distributed rains, but AIB noted short term crops would not be affected.

Devolution process

“Termination of the electoral process has refocused the country’s attention to the devolution process and subsequently increased government spending to operationalise support systems for the decentralisation process,” said AIB Capital.

Other factors likely to affect inflation include the foreign exchange rate and the price of crude oil. The shilling in March exchanged at an average of Sh85.81 against the dollar compared to Sh87.45.

“The shilling has stabilised against the dollar in the month under review and has made some gains over the Euro and the Yen as currency devaluation strategies are implemented to stimulate economic growth,” said AIB.