Businesses are passing rising fuel, transport and agricultural costs to consumers at the fastest pace in nearly three years as stronger demand and improving cash flows revive private-sector activity, findings of a monthly survey suggest.
The Stanbic Bank Kenya Purchasing Managers’ Index shows that new orders in September rose for the fourth consecutive month, with businesses citing stronger market demand, customer referrals, marketing campaigns and cash injections as drivers of sales growth.
Firms, however, struggled to keep up with growing demand, with output contracting for a seventh consecutive month as high costs and supply shortages choked operations.
The PMI– measures economic performance in the private sector such as output, new orders and employment– rose to 51.3 in September from 49.7 in August, returning to growth territory as customer demand strengthened.
However, recovery remains modest, with the latest reading matching the one in July. Christopher Legilisho, economist at Stanbic Bank, described the marginal boost in September as ‘a demand-led improvement in private sector conditions rather than a broad-based recovery in activity’.
‘Manufacturing, construction and services expanded, while agriculture, wholesale and retail remained under pressure,’ Mr Legilisho said in the report on Monday.
Higher cost of fuel, transport and agricultural inputs, alongside material shortages, limited ability of businesses to respond fully to stronger demand, according to the feedback from the PMI survey which targets about 400 corporate managers across key sectors.
Nearly a third (about 30 percent) of surveyed companies reported higher total input costs in September, compared with one percent that recorded a decline.
Businesses battled higher fuel costs and more expensive agricultural products, including milk, as shortages added to their expenses.
They responded by raising selling prices at the second-fastest pace since November 2023, with only June recording a faster increase. A fifth of surveyed firms in agriculture, manufacturing, construction, wholesale, retail, services and mining increased their prices during September, compared with two percent that cut them.
The PMI survey found that firms were mainly responding to higher input costs, although stronger demand and wider goods shortages also contributed to price increases.
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, a development managers mainly attributed to rising new business and workloads.
The rate of job creation, however, 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 but remained historically strong amid reports of pay increases linked to cost-of-living pressures.
The combination of stronger demand and higher costs is forcing businesses to balance expansion against protecting profit margins.
‘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,’ Mr Legilisho said. ‘Moreover, the acceleration in output price inflation to its second-fastest pace since November 2023 implies that businesses are increasingly passing higher costs to consumers.’
Companies 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.