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Report: Kenyan private sector grapples with soaring inflation

Duncan Muema by Duncan Muema
November 4, 2023
in News
Reading Time: 2 mins read

In October 2023, Kenyan private sector firms encountered significant inflationary pressures, as reported by the Stanbic Purchasing Managers’ Index (PMI). These pressures were primarily driven by surging fuel prices and ongoing currency weakness. The report also indicated that input costs escalated at the fastest rate since the survey’s inception nearly a decade ago.

Consequently, companies raised their selling prices at a record pace. This situation resulted in a deteriorating demand scenario for October, as elevated prices eroded consumer purchasing power and led to a substantial decline in new business. Consequently, output levels were reduced, and companies implemented their joint-fastest workforce reductions since mid-2020.

The Purchasing Managers’ Index, a key metric derived from the survey, provides insight into business conditions in the previous month. Readings above 50.0 signify an improvement, while readings below 50.0 denote a deterioration.

In October, the headline PMI registered 46.2, marking a decline from September’s 47.8 and indicating a notable weakening in the private sector’s health. This rate of decline was the second-fastest since August 2022 and closely resembled the significant downturn seen in July. Notably, the index had deteriorated by 8.0% compared to October 2022 when it stood at 50.2.

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Approximately 46% of the surveyed firms reported an increase in total expenses compared to September. These increases were attributed to rising fuel prices, associated transportation costs, ongoing currency weakness, and increased tax burdens. These cost escalations significantly impacted client demand and business activity.

The latest survey data revealed a marked and accelerated decline in new order volumes, impacting all five sub-sectors but particularly affecting construction and wholesale & retail. Similarly, output levels contracted sharply and more severely than in September.

As a result, business expectations for the next 12 months remained cautious in October, with firms exhibiting a modest degree of positivity that was largely unchanged from September. It is essential for the Kenyan government to take action to address the rising fuel prices and inflationary pressures to mitigate further harm to the private sector.

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