Kenyan firms are absorbing rising operating costs, largely driven by the Middle East crisis, to protect sales amid weak consumer demand, a new Central Bank of Kenya (CBK) survey shows.
The findings indicate that most businesses are absorbing higher production and operating costs rather than fully passing them on to consumers, squeezing profit margins and potentially reducing shareholder payouts for 2026.
The pressure could also trigger cost-cutting measures, including layoffs, as firms seek to protect profitability amid subdued demand.
‘Purchase prices generally increased, reflecting higher fuel, transport, import and other input costs,’ the CBK’s September chief executive officer (CEO) survey notes.
‘Selling prices remained largely unchanged, as some firms balanced cost recovery against weak demand. Full-time employment was also broadly stable, with some firms reducing staff in response to rising costs and subdued demand.’
An analysis of previous CEO surveys dating back to at least March 2026 shows that increases in purchase prices have consistently outpaced rises in selling prices.
The trend has intensified since the outbreak of the US-Israel war on Iran, which has driven up domestic fuel prices, raising costs for key sectors, including agriculture and manufacturing.
In the September survey, 65.8 percent of CEOs reported higher purchase prices in the third quarter of 2026 compared with the second quarter. However, only 39.7 percent reported raising selling prices.
Similarly, in May, 67.7 percent reported higher purchase prices in the second quarter compared with the first, while only 41.4 percent increased selling prices.
The pressure was less pronounced in the first quarter, when 46.3 per cent of CEOs reported higher purchase prices compared with the final quarter of 2025, while 27.1 percent raised selling prices.
Manufacturers reported the sharpest increase in purchase prices, at 70.6 percent, in September. Agriculture and services firms followed at 68.8 percent and 64.2 per cent, respectively.
Service-sector businesses passed on the largest share of costs to customers, with 43.2 percent reporting higher selling prices. The corresponding shares in agriculture and manufacturing were 25 per cent and 23.5 per cent.
Full-time employment remained relatively stable in the third quarter, suggesting that widespread layoffs have yet to emerge despite mounting cost pressures.
The Middle East crisis has pushed up fuel prices, contributing to domestic inflation, which rose to 6.8 percent in September from 6.6 percent in August. Supply pressures affecting commodities such as wheat and milk have also contributed to rising input costs.
By absorbing much of the increase, firms have helped shield consumers from further price rises. However, businesses could eventually raise selling prices to protect margins as fuel costs and agricultural supply disruptions sustain inflationary pressure.