Kenyan businesses are passing on rising fuel, transport and agricultural costs to consumers at the fastest pace in nearly three years, driven by stronger demand and improving cash flows. The Stanbic Bank Kenya Purchasing Managers' Index rose to 51.3 in September from 49.7 in August, indicating growth in private-sector activity. New orders increased for the fourth consecutive month, driven by stronger market demand, customer referrals, marketing campaigns and cash injections.
Despite growing demand, firms struggled to keep up with production, with output contracting for a seventh consecutive month due to high costs and supply shortages. Christopher Legilisho, economist at Stanbic Bank, attributed the marginal boost in September to a demand-led improvement in private sector conditions rather than a broad-based recovery in activity. The PMI survey found that manufacturing, construction and services expanded, while agriculture, wholesale and retail remained under pressure.
The survey revealed that nearly a third of companies reported higher total input costs in September, with businesses citing higher fuel costs and more expensive agricultural products, including milk, as shortages added to their expenses. In response, firms raised selling prices at the second-fastest pace since November 2023. A fifth of surveyed firms increased their prices during September, while two percent cut them.
The pressure came as inflation rose to 6.76 percent from 6.59 percent in August, extending the period above five percent to six months in a row. The September inflation rate was the highest since January 2024, when inflation stood at 6.85 percent, with food and transport costs squeezing household and business budgets.
Companies continued to add workers on improving demand, with employment increasing for the fourth consecutive month. The rate of job creation eased slightly but remained faster than the survey's long-run average, while backlogs rose for a fourth month. Staff costs also continued to jump, although wage inflation softened from August's seven-and-a-half-year high.
The combination of stronger demand and higher costs is forcing businesses to balance expansion against protecting profit margins. Firms have also begun rebuilding inventories after four months of declining purchases, with stocks of key materials rising to their highest level since June 2025. The restocking points to expectations of sustained demand, but also reflects concerns about shortages that could disrupt production.
Firms are planning capacity expansion, technology investment, increased marketing, and new products, suggesting confidence in the recovery. According to Legilisho, continued hiring, rising backlogs and renewed inventory accumulation indicate that firms expect demand to persist, but also suggest that capacity and supply constraints are becoming more binding.
Key points
- Kenyan businesses are passing on rising costs to consumers at the fastest pace in nearly three years.
- The Stanbic Bank Kenya Purchasing Managers' Index rose to 51.3 in September, indicating growth in private-sector activity.
- Inflation rose to 6.76 percent in September, extending the period above five percent to six months in a row.
