Rising Food and Transport Costs Drive Kenya’s Inflation to 4.6 Percent in September 2025

Kenya’s annual inflation rate edged slightly higher to 4.6 percent in September 2025, up from 4.5 percent in August, according to the latest Consumer Price Index report released by the Kenya National Bureau of Statistics. The marginal increase was primarily driven by rising costs in food and non-alcoholic beverages, transport, and housing-related expenses, though the rate remains comfortably within the Central Bank of Kenya’s target range of 2.5 to 7.5 percent.

The September inflation data indicates that the general price level in September 2025 was 4.6 percent higher than it was in the corresponding period last year, reflecting persistent but moderate inflationary pressures across the Kenyan economy. Month-on-month inflation stood at 0.2 percent, representing a slight deceleration from August’s 0.3 percent monthly increase.

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Food Prices Remain Principal Driver of Inflation

Food and non-alcoholic beverages continued to exert the strongest upward pressure on overall inflation, with the category recording an 8.4 percent year-on-year increase. Macdonald Obudho, Director General of the Kenya National Bureau of Statistics, noted that several key food items experienced price increases during the month, particularly affecting household budgets across the country.

“Food and non-alcoholic beverages index increased by 8.4 percent compared to September last year, with certain items recording significant price increases,” Obudho stated during the release of the inflation report. This category alone contributed 2.7 percentage points to the overall inflation rate, underscoring the significant impact that food price volatility continues to have on Kenyan consumers.

The food and beverage category accounts for approximately one-third of household expenditure in Kenya, making it the single most important component of the Consumer Price Index. When food prices rise substantially, they disproportionately affect lower-income households that spend a larger proportion of their income on basic food items.

Interestingly, despite the overall increase in food inflation, prices of some staple commodities actually declined during September. The price of loose maize grain dropped from KSh 70.93 to KSh 68.14 per kilogram, while sifted maize flour, a staple in Kenyan households, fell from KSh 156.99 to KSh 152.28 for a two-kilogram package.

Similarly, the cost of sukuma wiki, a popular leafy green vegetable, decreased from KSh 93.41 to KSh 92.48 per kilogram, and sugar prices eased slightly from KSh 186.53 to KSh 185.21 per kilogram. These price decreases in key staples provided some relief to consumers even as other food categories experienced upward pressure.

Transport Sector Faces Elevated Costs

The transport sector, which accounts for nearly 10 percent of the average household budget, recorded a 4.0 percent year-on-year increase in September, driven primarily by higher fuel prices. This represents a significant contributor to overall inflation, as transportation costs affect not only direct consumer expenses but also the cost of transporting goods throughout the economy.

Fuel price movements have historically been one of the most volatile components of Kenya’s inflation basket, responding to both global oil price fluctuations and local currency exchange rate movements. While petrol and diesel prices remained relatively stable on a month-to-month basis during September, the year-over-year comparison showed substantial increases that continue to affect transport operators and consumers alike.

The ripple effects of elevated transport costs extend throughout the economy. Higher fuel prices increase the cost of moving agricultural products from rural farming areas to urban markets, contribute to higher costs for public transport users, and raise operational expenses for businesses dependent on logistics and distribution networks.

Housing and Utility Costs Add Inflationary Pressure

The housing, water, electricity, gas, and other fuels category recorded a 1.4 percent annual increase, with electricity charges representing a particularly notable component of this rise. Data from KNBS showed that the price of electricity for a 200 kilowatt-hour consumption level increased from KSh 5,539.54 in August to KSh 5,597.16 in September, while the price for 50 kilowatt-hours rose from KSh 1,259.65 to KSh 1,274.06.

These increases in electricity tariffs affect both residential consumers and businesses, potentially dampening economic activity as energy costs rise. Kenya has been working to expand its electricity generation capacity through renewable energy investments, but the country continues to face challenges in making electricity affordable and accessible to all citizens.

Housing costs, including rent for residential properties, showed relative stability during the period. The monthly rent for a single-room dwelling remained relatively unchanged at approximately KSh 4,170, though year-over-year comparisons showed a modest 1.7 percent increase, reflecting gradual upward pressure in urban housing markets.

Core Inflation Remains Stable

An important indicator of underlying inflationary pressures, core inflation, which excludes volatile food and energy prices, remained relatively stable at 3.8 percent in September. This stability in core inflation suggests that the headline inflation increase is primarily being driven by temporary or sector-specific factors rather than broad-based demand pressures throughout the economy.

The gap between headline inflation at 4.6 percent and core inflation at 3.8 percent indicates that food and fuel volatility continues to be the principal source of price instability in the Kenyan economy. Core inflation contributed 2.8 percentage points to overall inflation, while non-core inflation contributed 1.7 percentage points.

This distinction is significant for monetary policymakers at the Central Bank of Kenya, as it suggests that underlying inflationary pressures remain moderate even as certain categories experience more dramatic price movements. The stability of core inflation provides the Central Bank with flexibility in its monetary policy decisions.

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Monetary Policy Implications and Central Bank Response

The marginal uptick in inflation comes against a backdrop of accommodative monetary policy from the Central Bank of Kenya. In August 2025, the Monetary Policy Committee reduced the Central Bank Rate by 25 basis points, citing room for further monetary easing as inflation remained well within the target range and economic growth showed signs of moderation.

The Central Bank has been on an easing cycle since mid-2024, gradually reducing the benchmark rate from a peak of 13.0 percent in July 2024 to 9.75 percent by June 2025. In February 2025, the MPC implemented a more substantial 50 basis point cut to 10.75 percent, and further reduced it to 10.0 percent in April before the most recent cut to 9.75 percent in June.

These rate reductions have been designed to stimulate lending to the private sector and support economic activity while inflation remains anchored within the target band. Lower interest rates theoretically encourage businesses to borrow for expansion and consumers to access credit for purchases, thereby stimulating economic growth.

The 91-day Treasury bill rate, a key short-term interest rate benchmark, has declined from 15.9 percent in May 2024 to approximately 8.3 percent by May 2025, reflecting the transmission of Central Bank policy to market interest rates. Average commercial bank lending rates have also decreased, falling from a peak of 17.2 percent in November 2024 to 15.7 percent in April 2025.

The next Monetary Policy Committee meeting is scheduled for October 7, 2025, where policymakers will assess whether the current inflation trajectory and economic conditions warrant additional rate adjustments or a pause in the easing cycle.

Economic Growth and Labor Market Dynamics

Kenya’s broader economic context provides important background for understanding inflation dynamics. According to the World Bank, Kenya’s GDP growth is expected to reach 4.5 percent in 2025, demonstrating resilience despite global economic uncertainties. Growth is projected to recover to an average of 4.9 percent during 2026-2027, driven by easing inflation, accommodative monetary policy, and improved credit growth.

However, labor market outcomes remain concerning. Employment growth declined from 4.4 percent in 2023 to 3.9 percent in 2024, while the share of formal jobs remained stubbornly low at around 15 percent of total employment. This weak job creation has significant implications for poverty reduction and inclusive growth.

At the international poverty line of $3.00 per day in 2021 purchasing power parity terms, poverty in Kenya is projected to decline by only 0.7 percentage points to 43.8 percent in 2025. The slow pace of poverty reduction underscores the challenge of ensuring that economic growth translates into improved living standards for the poorest Kenyans.

Exchange Rate Stability Supports Inflation Control

A key factor supporting Kenya’s inflation performance has been the substantial appreciation of the Kenyan shilling against major international currencies. The shilling strengthened from KSh 159.70 per US dollar in January 2024 to approximately KSh 129.30 by the end of May 2025, representing a remarkable recovery that has helped contain imported inflation.

Kenya’s foreign exchange reserves stood at $10.5 billion as of May 30, 2025, equivalent to 4.7 months of import cover, well above the statutory requirement of 4.0 months and the East African Community convergence criteria of 4.5 months. This comfortable reserve position has provided the Central Bank with ample ammunition to intervene in currency markets when necessary and has bolstered confidence in Kenya’s external sector stability.

The current account deficit narrowed significantly to 1.3 percent of GDP in 2024, down from 2.5 percent in 2023. This improvement was driven by increased export earnings, robust tourism receipts, and continued growth in remittance inflows from Kenyans working abroad.

Household Budget Impact and Cost of Living Concerns

Despite inflation remaining within the Central Bank’s target range, the cumulative effect of price increases over recent years continues to strain household budgets, particularly for lower-income families. The uptick in September inflation, though modest, raises concerns for households that have been struggling with elevated living costs.

Food, transport, and housing together account for more than 57 percent of the total weight in the Consumer Price Index, meaning that price movements in these categories have an outsized impact on typical household expenses. For families already operating on tight budgets, even small increases in these essential categories can force difficult choices about consumption and savings.

The government has repeatedly emphasized its commitment to controlling the cost of living, implementing various measures aimed at reducing food prices and making essential commodities more affordable. These efforts have included agricultural input subsidies, strategic food reserves management, and targeted interventions in specific commodity markets.

National Treasury Cabinet Secretary John Mbadi, in recent remarks, highlighted progress in bringing down prices of key commodities. He noted that prices of maize flour, sugar, packaged milk, and electricity have declined significantly from their peaks, providing relief to consumers. However, the persistence of elevated food inflation suggests that more work remains to be done.

Regional and Sector-Specific Price Variations

The Consumer Price Index data collected by KNBS comes from shops and markets across 50 urban areas throughout Kenya, captured during the second and third weeks of each month. This broad geographic coverage helps ensure that the inflation measures reflect price experiences across different regions of the country.

However, price movements can vary substantially across different parts of Kenya, with rural areas sometimes experiencing different inflation rates than urban centers. Areas dependent on specific agricultural products or affected by localized supply disruptions may see price movements that differ from national averages.

Certain food categories showed particularly dramatic price movements during September. While maize-based products declined in price, other vegetables and fresh produce categories experienced increases. This variability reflects the seasonal nature of agricultural production, weather-related supply disruptions, and the specific dynamics of different commodity markets.

Looking Ahead: Outlook and Challenges

The modest increase in September inflation to 4.6 percent keeps Kenya’s inflation rate well within the Central Bank’s target band, suggesting that overall price stability remains intact despite sector-specific pressures. The stability of core inflation at 3.8 percent provides further reassurance that underlying inflationary pressures remain contained.

However, several factors could influence inflation trajectories in coming months. Global oil prices remain subject to geopolitical uncertainties that could affect domestic fuel costs. Weather patterns and agricultural production will continue to drive food price volatility. Exchange rate movements, while favorable in recent months, could shift in response to global financial conditions or domestic economic developments.

The Central Bank’s continued monetary policy easing, while aimed at stimulating economic growth, will need to be carefully calibrated to ensure that inflation remains anchored within the target range. Too rapid an easing could risk reigniting inflationary pressures, while excessive caution could unnecessarily constrain economic recovery and job creation.

For ordinary Kenyans, the inflation outlook will significantly influence purchasing power and living standards. While the headline numbers suggest relative stability, the lived experience of consumers depends heavily on the specific basket of goods they purchase and their ability to adjust consumption patterns in response to relative price changes.

As Kenya approaches the final quarter of 2025, maintaining the delicate balance between supporting economic growth through accommodative monetary policy while keeping inflation under control will remain a central challenge for policymakers. The September inflation data suggests that, for now, this balance is being maintained, though vigilance will be required to ensure continued price stability in the months ahead.

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By: Montel Kamau

Serrari Financial Analyst

1st October, 2025