Update: The Ones and Twos of the Pump

My prediction on the pump price revision was on point. This comes to show how a simple analysis of economic trends can come a long way in giving you insights and making you more sophisticated 🙂

Across the pump, Super declined by  -0.44%, Diesel by -1.41% and the largest drop was seen in Kerosene by -2.71%. 

I wanted to give you a brief introduction in a terms that are relevant in the previous article on;

Leading indicators and  Lagging indicators

Leading Indicators

The exchange rate and the crude oil prices can be viewed as leading indicators as they signal future events. In the case of the fuel prices, a change in the exchange rate and the currency would signal analysts to anticipate a change with a 1 month lag. Since I believe you have read my

(if you haven’t… go ahead and read it. I’ll be here waiting), you know that if the Kenyan shilling appreciated, on average, against the US dollar over the month of October and November then we would expect and the OPEC crude oil prices, on average, decreased over the same time period then we would anticipate a decline in pump prices in the month of December to January. (This is exactly what happened, have a read http://www.erc.go.ke/index.php?option=com_content&view=article&id=260:marginal-impact-of-excise-duty-in-december-2015-pump-prices-review&catid=98:latest-news&Itemid=579)

Don’t get me wrong, this doesn’t mean that these leading indicators are always right… what it does mean is that they give some sort of indication on what will happen next. For the simpler human who doesn’t have time to go over trends leave it to analysts and traders like myself who go crazy in speculating and anticipating trends in the economy.

Lagging Indicators

I didn’t touch on inflation earlier because I didn’t want to bombard you with information (Yes, yes… I do care). Inflation is a lagging indicator because it follows an event. I do agree that fuel prices can drive some variation in inflation however  find this only true in the short to medium term. This can be seen as fuel prices drive input costs during production and manufacture of products. If fuel prices increase in one period, we would anticipate a higher inflation rate in the next

However, over the long run, the Monetary Policy Committee (MPC) can use monetary policy to offset shocks and have control over the average inflation level. Inflation is difficult to predict but following the MPCs policy changes can give you an indication of what to expect in future.

In closing…

Now, you have some lingo you can throw into a conversation. Go make me proud 🙂