Kenyan private sector firms encountered unparalleled inflationary pressures in October, according to the latest Stanbic Bank PMI® survey data. These pressures were primarily driven by a surge in fuel prices and the persistent weakness of the national currency.
Input costs rose at their fastest rate in almost a decade, prompting companies to implement record-high increases in their selling prices. As a result, the data reveals a deteriorating demand scenario in October, as elevated prices diminished consumer purchasing power and led to a significant decline in new business.
Consequently, firms scaled back their output levels, while simultaneously making their joint-fastest reduction in workforces since mid-2020. The headline figure derived from the survey, known as the Purchasing Managers’ IndexTM (PMI®), indicates business conditions. A reading above 50.0 signifies an improvement, while below 50.0 signals a deterioration.
In October, the headline PMI dropped to 46.2, down from 47.8 in September. This marked a substantial decline in the private sector’s health, with the rate of decline being the second-fastest since August 2022 and close to the downturn seen in July.
This deterioration in business conditions can be attributed to the rising cost pressures across the private sector economy. The survey data indicates the strongest increase in input prices since data collection began in 2014, with 46% of firms reporting increased expenses due to higher fuel prices, transport costs, currency weakness, and increased tax burdens.
To protect their margins, Kenyan companies raised their selling prices at an unprecedented rate, causing inflation to surpass the previous high seen in mid-2022. This had a significant impact on client demand and business activity.
The data further revealed a substantial and accelerated decline in new order volumes, especially in the construction and wholesale & retail sectors. Output levels contracted sharply, and companies tightened their spending on inputs and labor as economic conditions toughened.
Employment numbers also declined at the joint-strongest rate since June 2020, reflecting the challenging environment. Purchasing activity decreased modestly, and vendor performance slightly improved due to quicker deliveries, aimed at addressing cash flow concerns.
Despite the challenges, business expectations for the coming 12 months remained somewhat positive, showing resilience compared to a record low in April. Firms maintained hopes that sales and activity would pick up, resulting in a renewed increase in their inventory holdings.
