Kenya’s private sector activity contracted in August for the first time in three months, as supply constraints and cost pressures led companies to reduce output and purchases, a survey showed on Thursday.
The Stanbic Bank Kenya Purchasing Managers’ Index fell to 49.7 in August from 51.3 in July, dropping below the 50.0 threshold that separates growth from contraction. S&P Global compiled the reading from responses collected between August 12 and 26. The index had crossed above 50.0 in July for the first time in five months before falling back in August.
What Pushed the Index Below 50
New orders rose for a third consecutive month in August, at a slower pace than in July. Firms cited bulk buying, advertising and demand for private healthcare, which some linked to public sector strikes.
Output fell for a sixth consecutive month, and the rate of decline sped up from June and July. Firms pointed to raw material costs, tight cash flows and, in some cases, shortages of key materials.
“Kenya’s Stanbic Bank PMI weakened in August due to momentum loss in the private sector as elevated raw materials costs and tight cash flows constrained firms’ ability to translate stronger demand into output,” said Christopher Legilisho, economist at Stanbic Bank. “Nevertheless, new orders proved resilient due to bulk purchasing, advertising, and demand for private healthcare.”
Input buying fell for a fourth consecutive month, with the rate of decline the fastest in over a year. Stocks of purchases fell at their fastest pace in three and a half years, though the decline stayed modest overall. Suppliers reported quicker delivery times for the first time in three months as purchasing activity slowed.
Backlogs Rise as Firms Add Staff
Backlogs of work grew at close to the fastest pace in five and a half years through the middle of the third quarter. Employment rose for a third consecutive month at a pace above the survey average.
“The increase in backlogs demonstrates this demand and supply mismatch of workloads rising faster than firms can increase output, prompting the additional hiring of staff,” Legilisho said. “Still, lower purchasing arising from shortages of inputs and inventory levels eased the pressure on suppliers. However, this may also mean that businesses are cautious, which may limit production growth if demand should strengthen further.”
Firms reported the strongest year ahead output expectations since February 2023, citing planned investment in marketing, capacity, product diversification and new technology.
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Prices Rise at a Slower Pace, but Inflation Persists
Input price inflation eased to its lowest rate since April, though fuel and transport costs kept rising and wage costs rose at a faster pace. Firms raised their own charges to protect margins, with the rate of increase slowing to a four month low.
Kenya’s official inflation data for August lines up with that picture. Consumer prices rose 6.6 percent year on year in August, up from 6.5 percent in July, according to the Kenya National Bureau of Statistics. Food and non-alcoholic beverages rose 9.0 percent over the year and transport costs rose 15.7 percent, together driving most of the increase. Khusoko reported in July that fuel prices had held steady through a VAT cut and subsidy, both measures set to expire, while underlying cost pressure tied to Middle East supply risk remained in place.
“Inflationary pressures remain elevated,” Legilisho said. “Still, the moderation in input and output price inflation from June peaks may imply gradual disinflation. However, rising wage costs are broadening price pressures beyond raw materials. Therefore, underlying inflation may prove sticky as firms pass these increases on to consumers.”
August 2026 at a Glance
| Indicator | August 2026 | July 2026 |
|---|---|---|
| Stanbic Bank Kenya PMI | 49.7 | 51.3 |
| Headline inflation (year on year) | 6.6% | 6.5% |
| New orders | Up, 3rd month | Up |
| Output | Down, 6th month | Down |
| Input price inflation | Lowest since April | Higher |
| Backlogs of work | Rising | Rising |
A Pattern Khusoko Has Tracked Through the Year
August marks the fourth time in 2026 that the PMI has crossed the 50.0 line. Khusoko has followed the index each month: the reading opened the year at 51.9 in January, fell to 50.4 in February, then dropped to 47.7 in March, its first reading below 50.0 since August 2025, as firms cited demand concerns and supply disruptions tied to the Middle East conflict. The index recovered over the following months, crossed back above 50.0 in July, then fell again in August. Kenya’s private sector remains linked to global fuel prices and supply chain conditions outside its control, a link Khusoko has also traced through its coverage of domestic fuel pricing.
Growth Forecast Unchanged for 2027 and 2028
Kenya’s finance ministry forecasts economic growth of 5.1 percent in 2027 and 5.2 percent in 2028, up from an estimated 5.0 percent this year, Treasury Principal Secretary Chris Kiptoo said. The 2026 figure represents a downward revision from an earlier forecast of 5.3 percent, which the Treasury attributed to disruptions from the Middle East conflict, including higher fuel prices, disrupted supply chains and weaker external demand.
The government points to agriculture, financial services, manufacturing, construction and tourism as the sectors supporting growth into 2027 and 2028. Treasury expects easing external pressures and normalizing supply chains to help output catch up with demand.
August’s PMI data shows that catch up has not yet happened. Kenyan firms reported rising orders and rising backlogs at the same time, a gap they are addressing through hiring and investment while costs continue to limit how much they can produce and buy.
