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Activity in the country’s services sector increased at a marginal pace in October, according to business executives responding to a Service Sector Outlook Survey.

The revenue index by Stanbic Bank Kenya Purchasing Managers Index (PMI), a key measure of the private sector conditions, posted 50.2 to signal only a fractional improvement in operating conditions in the period under review.

Last month’s index was down from a seven-month high of 51.7 the sector posted in September when renewed growth was indicated due to the end of the national election period.

September’s reading posted 51.7 during the month, up sharply from 44.2 in August and above the 50.0 no-change mark for the first time since March this year. Labour market indicators suggested continued but cautious employment growth and longer workweeks in October, a synonymous period for seasonal hiring.

“New orders, employment and purchasing growth recorded weaker expansions. Bar manufacturing, output contracted slightly for the seventh time in eight months. However, the 12-month output outlook improved to a 15-month high,” noted Mulalo Madula, an economist at Standard Bank.

Business conditions

The reading signaled a repeated and modest improvement in overall business conditions, even though the rising standard of living occasioned by the high inflation rate, remained a key concern for the survey panelists.

“On the downside, inflationary pressures appear to be increasing. Input costs accelerated, underpinned by higher fuel prices, a weaker exchange rate, staff costs, and shortages of commodities such as timber and animal feed,” observed Madula. Further warning that, if price pressures persist and firms continue to pass on a higher share of rising input cost burdens to output charges, demand may weaken in the short to medium term, slowing the overall rate of improvement in Kenya’s business environment.

The annual inflation rate in the country accelerated for the eighth straight month to 9.6 per cent in October from 9.2 per cent a month earlier and above market forecasts of 9.5 per cent – marking the steepest inflation rate since May of 2017, and breaching the upper limit of the central bank’s target range of between 2.5 per cent and 7.5 per cent for the fifth month.

The outlook for 2022 and 2023 now remains extremely uncertain.

The last time the country witnessed this kind of inflation was in June 2017 when it hit 9.21 per cent, according to inflation data by the Kenya National Bureau of Statistics (KNBS).

In response to soaring inflation, the government has been left with a daunting choice to either increase spending to support its citizens while burying itself deeper in debt or implement austerity measures and potentially incite social unrest.