Kenya’s private sector is showing renewed signs of resilience, with business activity expanding for a second consecutive month in October 2026. Manufacturing led the improvement, supported by stronger customer demand and rising business confidence, although mounting inflation and operating costs continue to challenge the recovery.
The Stanbic Bank Kenya Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 52.5 in October from 51.3 in September, moving further above the 50-point threshold that separates expansion from contraction. Manufacturing recorded the strongest increases in output and new orders among the five monitored sectors. Construction, however, was the only sector to register declining sales, highlighting the uneven nature of the recovery.
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Business confidence also strengthened considerably. The future output index reached its highest level in six years, with 51 per cent of surveyed firms anticipating higher activity over the coming year, compared with 31 per cent in September. Stanbic economist Christopher Legilisho attributed the optimism to planned business expansions, new products, marketing initiatives and investment. However, translating these expectations into sustained capital expenditure and employment growth will depend on whether businesses can manage rising costs and cash-flow constraints.
The improvement in business activity coincided with renewed inflationary pressure. Kenya’s annual inflation rate rose to 7.3 per cent in October from 6.8 per cent in September, its highest level since July 2023. According to the Kenya National Bureau of Statistics (KNBS), the increase was driven principally by transport, food and non-alcoholic beverages, and housing, water, electricity, gas and other fuels, which recorded annual price increases of 17.1 per cent, 10.2 per cent and 3.7 per cent, respectively.
Core inflation, which excludes volatile items such as food and energy, stood at 4.3 per cent, indicating that much of the immediate pressure was concentrated in these more volatile components. Nevertheless, rising transport and food costs continue to affect household purchasing power and business operating expenses.
The PMI survey reinforced these concerns. Input cost inflation accelerated to its fastest pace since November 2023, with businesses frequently citing higher fuel and transport expenses. Selling price inflation also reached its second-fastest pace in three years as firms passed some of the additional costs on to customers to protect their margins. Legilisho observed that October’s results pointed to firmer demand and improved confidence, but that price pressures, cash-flow difficulties and modest hiring continued to constrain the recovery.
Employment conditions reveal another important dimension. Businesses increased staffing for the fifth consecutive month, but the pace of job creation was modest and the weakest in the current expansion sequence. Meanwhile, outstanding business accumulated at the fastest rate in seven years, suggesting that stronger demand is stretching existing operating capacity. Although rising orders are encouraging, the limited employment response raises questions about how quickly the recovery will translate into broader job creation.
Businesses also increased input purchases at the fastest pace since January and accumulated inventories at their quickest rate in four years. Supplier delivery times shortened at the fastest rate since September 2021, indicating improved responsiveness among vendors. These developments suggest that firms are positioning themselves to meet stronger demand, although sustained inventory expansion will depend on the durability of the recovery.
Kenya’s broader economic outlook remains cautiously positive. The Central Bank of Kenya (CBK) revised its 2026 economic growth projection upwards to 5 per cent from 4.9 per cent in October, reflecting stronger expected performance in industry and services. The Monetary Policy Committee retained its benchmark Central Bank Rate at 8.75 per cent on 7 October, seeking to balance economic activity with price and exchange-rate stability. The European Bank for Reconstruction and Development (EBRD), meanwhile, projects Kenya’s economy to expand by 4.7 per cent in 2026, reflecting concerns about higher energy costs and external economic disruptions.
The employment figures also highlight the need to ensure that economic expansion generates more productive and sustainable livelihoods. According to the KNBS Economic Survey 2026, Kenya created 822,100 jobs in 2025, of which 716,800, representing 87.2 per cent, were in the informal sector. Informal employment reached approximately 18.1 million people, while modern-sector wage employment stood at 3.315 million. This distribution illustrates the continuing challenge of translating economic growth into formal employment, improved productivity and greater income security.
For policymakers, the combination of stronger business activity and rising inflation presents a delicate balancing exercise. Kenya’s inflation target range is 2.5 to 7.5 per cent, placing October’s 7.3 per cent reading close to its upper limit. While maintaining interest rates may help contain inflation expectations, excessively tight monetary conditions could constrain access to credit and limit business investment. The challenge is to preserve price stability without undermining the productive sectors supporting economic growth.
Kenya’s October PMI therefore presents a picture of genuine but uneven economic improvement. Manufacturing is strengthening, business confidence is rising and firms are preparing for increased demand. Yet inflation, modest hiring, construction weakness and cash-flow difficulties remain significant constraints.
The next phase of the recovery will depend on whether stronger orders translate into sustained investment, increased employment and improved household purchasing power. For Kenya, the objective must extend beyond maintaining an expanding private sector to ensuring that its benefits are reflected in more productive businesses, decent jobs and broader economic prosperity.
