Kenyan Businesses Face Higher Costs but Struggle to Raise Their PricesKenyan Businesses Face Higher Costs but Struggle to Raise Their Prices

The Central Bank of Kenya (CBK) surveyed chief executives between 7 and 18 September about business conditions in the July-to-September quarter. The report targeted 600 private-sector firms, with responses from businesses across retail, tourism, professional services, agriculture, manufacturing, finance and other sectors.

Its findings show that higher fuel, transport, import and other input costs were making it more expensive for companies to operate. The gap between the share reporting higher purchase prices and the share raising selling prices suggests many firms have not passed all those increases on to customers.

That does not mean every business has lost money. The survey records the share of respondents reporting price changes, not the size of each company’s cost increase or its profit margin. But it does show why firms may be under pressure: when suppliers charge more and customers resist higher prices, businesses have fewer ways to protect what they earn from each sale.

The cost squeeze in the survey

Of the firms responding, 52.6% kept their selling prices unchanged in the third quarter, while 7.7% reduced them. On the cost side, 29.7% reported stable purchase prices and 4.4% said those prices fell. The pattern shows that rising costs were more common than price increases at the point of sale.

The pressure was especially visible in manufacturing. The survey found that 70.6% of manufacturing firms reported higher purchase prices. The share was 68.8% in agriculture and 64.2% in services. Yet only 23.5% of manufacturers and 25% of agricultural firms reported raising selling prices. Services firms were more able to pass on some increases, with 43.2% reporting higher selling prices.

These figures are not a measure of the average amount by which prices rose. They show how many firms reported an increase. They also do not mean every manufacturer or farmer is facing the same costs. The pressure depends on the products bought, the energy used, transport needs, access to suppliers and the strength of customer demand.

Why firms may be holding prices down

A business can respond to higher costs in several ways. It can raise prices, accept lower earnings on each sale, reduce other expenses, delay investment or try to sell more. The choice depends on how easily customers can switch to another supplier and whether the business has enough cash to carry the extra cost.

A shop selling everyday household goods may hesitate to raise prices if customers can buy the same products from a nearby competitor. A manufacturer supplying supermarkets may face pressure from buyers to keep contract prices unchanged even as packaging, transport or electricity becomes more expensive. A farmer or food processor may have little room to negotiate when fuel and other inputs rise but buyers are price-sensitive.

The CBK survey points to weak demand as one reason companies were reluctant to increase selling prices. In its report, the bank said firms were balancing the recovery of higher costs against subdued demand. That is a difficult choice: a price increase may protect the amount earned on each item, but it can also send customers elsewhere or reduce the number of units sold.

Mwenendo's earlier report on higher oil prices and the pressure on fuel costs examined one source of that pressure. Fuel affects more than motorists. It can raise the cost of moving stock, delivering orders, running machinery and producing goods. The CBK survey also identified import and transport costs among the factors pushing purchase prices higher.

Jobs have not fallen across the board, but the warning is there

The survey found that 79.6% of responding firms kept full-time staff numbers unchanged during the third quarter. A further 7.2% increased employment, while 13.2% reduced their workforce.

That is not evidence of widespread job losses across Kenya. It does, however, show that more surveyed firms cut staff than added workers during the quarter. If costs remain high and sales do not grow enough to cover them, some businesses may look for savings in staffing, working hours, expansion plans or other operating expenses.

The distinction matters for workers and jobseekers. A company can avoid immediate redundancies by freezing recruitment, leaving vacant positions unfilled or postponing expansion. Those choices may not appear as job losses in the current quarter, but they can limit new employment opportunities.

The survey also found mixed business activity. Some firms reported stronger orders and sales, while others experienced declines. That uneven picture cautions against treating all sectors or businesses as though they face identical conditions.

The pressure may continue into the final quarter

The CBK survey found that 47.9% of firms expected their purchase prices to rise in the October-to-December quarter. Only 30.3% expected to increase selling prices. Most respondents expected to keep selling prices unchanged, with competition and weak demand limiting their ability to charge more.

That expectation is not a guarantee that prices will stay put. It is a snapshot of what business leaders expected when the survey was conducted. Actual costs and prices can change if fuel prices, exchange rates, imports, weather or customer demand move differently from their expectations.

The latest consumer data also show that households are facing higher prices. The Kenya National Bureau of Statistics (KNBS) reported annual inflation of 7.3% in October, up from 6.8% in September. Food and non-alcoholic beverage prices were 10.2% higher than a year earlier, while transport prices rose 17.1%.

These figures measure changes in consumer prices, not the costs paid by businesses, but they help explain why households may have limited room to absorb further increases.

The result is a difficult balance. Businesses need enough income to pay suppliers, workers, rent and other bills. Customers need prices they can afford. If companies keep absorbing higher costs, their ability to invest, hire or expand may weaken. If they raise prices, households may cut back on purchases.

What the figures do not tell us

The CBK survey provides a useful national picture, but it does not identify the profit margin of each business or show how much more a typical company paid for its inputs. It also does not replace direct reporting from small firms, which can face different conditions from larger companies.

The percentages should not be read as the share of all Kenyan businesses, since they describe the firms that responded to the survey. Nor do they prove that rising costs have already caused a particular company to cut jobs or close.

The next useful evidence will come from company results, further CBK surveys and direct conversations with owners in retail, manufacturing, agriculture and services. Those would show whether businesses are still absorbing costs, beginning to pass them on, reducing staff or finding ways to operate more efficiently.

For customers, the immediate lesson is that stable prices in a shop do not necessarily mean the seller's costs have stayed stable. For business owners, the figures show how difficult it can be to protect both customers and the money needed to keep a company running.