Written by: Badr Ahmed

An economic survey published on Thursday showed that private sector activity in Kenya continued to contract for the third consecutive month in May 2026, amid rising operating costs and declining demand, reflecting the challenges facing both Kenyan businesses and households.

Inflation is putting pressure on the Kenyan economy and restricting private sector activity.

According to the Purchasing Managers’ Index (PMI) released by Stanbic Bank Kenya, the index fell to 46.6 points in May compared to 49.4 points in April, marking the fastest rate of contraction since July 2024. Readings below 50 points indicate a contraction in economic activity, while readings above this level reflect business growth.

The bank explained that weak domestic demand, rising inflationary pressures, and a decline in new business opportunities were among the main factors driving the index down. It noted that the manufacturing sector was the only exception among the major economic sectors, managing to achieve limited growth contrary to the overall market trend.

This decline coincided with a rise in Kenya's annual inflation rate to 6.71 TP3T in May, compared to 5.61 TP3T in April, marking the highest inflation level in over two years. Analysts attribute this increase primarily to rising fuel prices and transportation costs, amidst the turmoil in global energy markets.

Christopher Legilecho, an economist at Stanbeck Bank, said that worsening inflationary pressures have directly affected consumers' purchasing power, leading to weakened demand for goods and services.

He added that companies faced rising input, purchasing and transportation costs, which prompted many of them to raise the prices of their products and services, increasing pressure on consumers and negatively affecting the pace of economic activity.

Despite the current picture reflecting a marked economic slowdown, the survey showed that companies still maintain a positive outlook on the future, driven by expectations of improved economic conditions in the coming months.

The Kenyan Bureau of Statistics had previously predicted that the national economy would grow by 4.9% in 2026, compared to growth of 4.6% in 2025, indicating continued hopes for an economic recovery despite the challenges associated with inflation and rising living costs.