In most economies, inflation tends to rise with growing consumer demand. This typically reflects a healthy environment where households have disposable income, businesses are expanding, and investor confidence is strong. In such contexts, inflation is not just a threat but often a signal of economic vitality. It points to price stability, sound monetary policy, and conditions that support saving, investment, and long-term planning. Yet in Kenya today, low inflation is not a sign of economic strength.
According to the Kenya National Bureau of Statistics, inflation stood at 4.1 percent in April 2025, up slightly from 3.6 percent in March. At face value, this appears reassuring and suggests a stable macroeconomic environment. However, a closer look reveals a more troubling picture, a calm that hurts. Beneath the surface are signs of suppressed demand, rising unemployment, and widespread economic fatigue. The reduction in household spending is not a matter of choice but a reflection of shrinking or nonexistent disposable income for the average Kenyan.
This commentary seeks to unpack what Kenya’s low inflation truly signals, highlight the underlying economic vulnerabilities it conceals, provide a brief outlook on growth implications, and proposes policy interventions to support future recovery.
Key Issues
To better understand what Kenya’s low inflation reflects, this section examines three critical issues: suppressed household demand, rising cost pressures on incomes, and growing dependence on digital credit as an indicator of financial vulnerability.
- Suppressed Demand and Shrinking Formal Economy
Kenya’s low inflation is not evidence of economic dynamism. Instead, it reflects a sharp decline in consumer demand, pervasive job insecurity, and a shrinking formal sector. In 2024 alone, over 130 companies exited or significantly downsized operations, including multinationals like Nestlé and Bayer, and prominent local startups such as Sendy. Between 2019 and 2023, more than 9,400 businesses were deregistered, a clear reflection of eroding confidence and deeper structural weaknesses within the economy.
Formal job creation has mirrored this downward trajectory. According to the 2025 Economic Survey, formal job creation fell dramatically from 122,900 new formal jobs in 2023 to just 75,000 in 2024.[1] Meanwhile, the economy added 782,300 new jobs in 2024, with 90 percent in the informal sector. The informal workforce now stands at approximately 17.38 million, compared to just 3.21 million formally employed individuals. Informal jobs typically offer limited stability, scant protections, and minimal career progression providing subsistence rather than security. This significant shift has had direct implications on household consumption patterns. According to data from the Kenya National Bureau of Statistics (KNBS), retail spending has declined across key categories such as clothing, electronics, and even basic household items. Consequently, the current low-inflation environment is less about genuine stability and more about profound economic exhaustion. - Income Erosion amid Persistent Food Price Shocks
While Kenya’s low inflation rate suggests stability, households continue to grapple with rising food prices and eroding incomes. Food prices remain stubbornly elevated due to climate-related disruptions. The IGAD Climate Outlook for 2025 projected significantly below-average rains between March and May across many regions, severely impacting maize, milk, and vegetable production. This has translated into sharp price spikes. For example, the price of a 2kg packet of maize flour rose from Kshs 180 in January 2025 to Kshs 212 by mid-April a nearly 18 percent increase.
Low-income households, who allocate a disproportionately large share of their income to food, have felt these shocks intensely. A 2024 Kenya Bankers Association (KBA) report revealed that over 60 percent of surveyed households reduced meal portions or skipped meals altogether due to rising costs. Household finances have also been strained by rising statutory deductions. Since February 2025, workers have faced mandatory contributions of 2.75 percent of gross salary to the Social Health Insurance Fund (SHIF), 1.5 percent to the Affordable Housing Levy, and doubled NSSF rates for high-income earners. Combined with existing taxes and levies, these deductions have significantly diminished take-home pay.Data from the Institute of Public Finance Kenya (IPFK) shows that the average monthly disposable income of a formally employed middle-income earner fell from Kshs 41,000 to Kshs 36,800 in 2024. Reduced incomes directly translate into lower consumption, weakening the economic multiplier effect.
- Mobile Credit and the Debt-Fuelled Survival Trap
Another worrying sign lies in citizens increasing dependence on mobile lending platforms. Services like Fuliza, Tala, Branch, and M-Shwari. These were initially designed for convenience and financial inclusion, but have instead become essential lifelines. According to Safaricom’s financial results for the year ending March 2025, Fuliza disbursed approximately Kshs 981.6 billion, a significant increase from the Kshs 833.8 billion recorded the previous year. Analysts estimate that more than 60 percent of these loans supported household consumption covering basics like food, transport, and school fees. This transition from investment-driven borrowing to survival-driven debt highlights a broader erosion of financial resilience.
Simultaneously, access to traditional credit remains constrained. Although the Central Bank of Kenya reduced its policy rate to 10 percent in April 2025 to encourage borrowing, commercial banks have maintained cautious lending practices. According to the KBA SME Credit Access Report (2025), SME loan application approval rates remained at a mere 41 percent, citing default risks and irregular incomes as critical concerns.Digital credit has thus filled a necessary gap, but at a steep cost. Mobile loan interest rates frequently range between 18 and 45 percent annually, accompanied by hefty penalties for late repayment. Without adequate regulatory safeguards, these platforms trap borrowers’ particularly low-income earners in cycles of debt rather than enabling sustainable economic growth.
Conclusion and Future Outlook
Kenya’s persistently low inflation, in the absence of rising household welfare and productive investment, reflects structural economic fatigue rather than macroeconomic stability. This commentary has shown that declining formal job creation, falling disposable income, and growing dependence on informal credit are suppressing domestic demand and concealing deeper vulnerabilities. The low-inflation trend must therefore be understood in relation to household-level stress and sectoral stagnation.
The political economy outlook adds further uncertainty. With the 2027 general elections approaching, there is a high likelihood of politically motivated interventions such as tax reliefs and subsidies. While these may offer temporary relief, they risk undermining fiscal discipline and could trigger post-election inflation spikes and spending cuts.
Kenya’s inflation trajectory therefore remains fragile. Without targeted fiscal and monetary reforms, the country risks entering a prolonged phase of low growth, weak demand, and widening inequality. Stability in price levels cannot be viewed in isolation from employment trends, household resilience, or fiscal credibility. The real challenge is not in maintaining low inflation, but in ensuring that low inflation stems from productive strength rather than economic stagnation.
Policy Recommendations
- The Government, through the National Treasury and in consultation with Parliament and relevant ministries, should expand household purchasing power by revising PAYE bands and pausing new statutory deductions for low and middle-income earners to boost disposable income and stimulate domestic demand.
- The Ministry of Public Works and the National Treasury should promote formal job creation by increasing investments in labour-intensive infrastructure, healthcare, and climate-resilient projects while using public procurement to reward firms that create formal employment.
- The Ministry of Agriculture and county governments should strengthen food systems by scaling up irrigation, subsidizing inputs, and investing in post-harvest storage to enhance agricultural resilience and reduce food price volatility.
- The Central Bank of Kenya and the Competition Authority should regulate digital credit by enforcing interest rate caps, requiring clear disclosure of terms, and integrating credit regulation with national financial literacy efforts to protect borrowers.
References
- Bwire, T., & Kihoro, J. (2023). Inflation dynamics and monetary policy in Kenya: Evidence from a structural VAR model. African Journal of Economic Policy, 30(2), 45–62.
- Central Bank of Kenya. (2025). Monetary Policy Committee communiqué – April 2025. Nairobi: CBK.
- Federation of Kenya Employers. (2024). Employment and business exit trends report. Nairobi: FKE.
- Financial Sector Deepening Kenya. (2024). Digital credit in Kenya: Trends and risks. Nairobi: FSD Kenya.
- IGAD Climate Prediction and Applications Centre. (2025). Seasonal outlook – March to May 2025. Djibouti: IGAD.
- Institute of Public Finance Kenya. (2024). Quarterly income and consumption tracker. Nairobi: IPFK.
- Kenya Bankers Association. (2025). SME credit access and household resilience survey. Nairobi: KBA.
- Kenya National Bureau of Statistics. (2025). Consumer price index and inflation rates – April 2025. Nairobi: KNBS.
- National Treasury. (2025). Budget policy statement 2025. Nairobi: Government of Kenya.
- Omondi, R., & Muthoni, L. (2022). The impact of digital credit on household welfare in Kenya. African Journal of Finance and Economic Development, 7(1), 88–106.
- Payroll.org. (2025, May 12). Kenya mandates automatic PAYE tax relief starting 1 July 2025. Retrieved from https://payroll.org
- PwC Kenya. (2025). Kenya: Individual taxes – Other taxes overview. Retrieved from https://taxsummaries.pwc.com/kenya
- Safaricom PLC. (2025). Annual financial results: Year ending March 2025. Nairobi: Safaricom.
- The Standard. (2025, February 15). New NSSF rates now in effect as deductions double for formal workers. Nairobi: Standard Media Group.