Rising costs hit Kenyan companies, consumer wallets

Kenyan shoppers face rising living costs as inflation drives up prices of essential goods. [iStockphoto]

Kenya’s private sector returned to growth in October as businesses received more orders. However, rising operating costs and pressure on consumers continue to weigh on the recovery, according to a business survey released on Wednesday.

The Stanbic Bank Kenya Purchasing Managers’ Index (PMI) rose to 52.5 in October from 51.3 in September, marking the second consecutive monthly increase and the highest reading this year.

A reading above 50 indicates an expansion in business conditions.

The headline figure was buoyed by a sharp acceleration in new order growth, which reached its fastest pace in nearly a year.

Surveyed firms cited increased customer referrals, greater footfall and new contracts, pushing sales volumes up for a fifth straight month. Consequently, business activity expanded for the first time since February, though the rate of growth was modest.

"The improvements were broad-based across most sectors, with the construction sector the only laggard," Christopher Legilisho, Economist at Stanbic Bank, said in a statement.

Despite the resurgent demand, the survey painted a picture of a private sector enduring a gruelling operating environment.

Input cost inflation accelerated to its fastest pace since November 2023, with 36 per cent of monitored firms reporting higher total input costs compared to just two per cent seeing a fall.

Panellists frequently cited elevated fuel and transport costs as the primary driver of the expense surge, compounded by suppliers raising fees in response to product shortages and broader inflation.

The findings mirror deep-seated concerns captured in a recent Central Bank of Kenya (CBK) survey, where business leaders urged President William Ruto's government to urgently slash the cost of doing business.

In the September 2026 CEOs Survey, executives warned that high levies, compliance burdens and expensive credit were stifling expansion and holding back job creation.

While Ruto announced measures during his Mashujaa Day speech to review licensing fees and lower electricity tariffs for manufacturers, businesses argue these interventions fall short.

The PMI data underscores that the cost-of-living crisis is directly feeding into corporate inflation.

Official data released last week showed annual inflation surged to 7.3 per cent in October, driven by a 17.1 per cent jump in transport costs and a 10.2 per cent rise in food prices.

To protect margins, firms raised their average selling prices at a quicker pace, with the rate of output price inflation hitting its second-fastest level in three years.

"October's survey therefore points to firmer demand and improved confidence, but the recovery remains constrained by price pressures, cash-flow difficulties and a modest hiring response," Legilisho noted.

The squeeze on household disposable income is beginning to stretch the operating capacity of Kenyan businesses.

Although firms raised input purchases at the fastest pace since January and built inventories at the quickest rate in four years, backlogs of work accumulated at the fastest pace in exactly seven years as funding gaps and processing delays hampered operations.

While employment rose for the fifth month running across all sectors, the rate of job creation slowed to the weakest in the current sequence, indicating that firms remain cautious about expanding their headcounts amid the uncertain economic climate.

Despite the current headwinds, future expectations strengthened.

About 51 per cent of firms anticipated higher activity in a year's time, up from 31 per cent in September, pushing the Future Output Index contained in the survey to its highest level since March 2020.

Companies linked this optimism to planned business expansions, new marketing campaigns, and product investments, the survey said.

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