Why Kenya's Low Inflation Isn't Making Our Wallets Heavier

 

You've probably seen the headlines or heard the news: "Kenya's inflation rate is low!" In June 2025, our annual inflation rate stood at a cool 3.8%, comfortably within the Central Bank of Kenya's target range. On paper, this sounds like great news. Low inflation usually means prices aren't rising fast, your money buys more, and life feels a bit easier. But if you're like many Kenyans, you're probably scratching your head and thinking, "Low inflation? Really? My wallet still feels lighter than a feather, and basic expenses keep climbing!"

So, what's the disconnect? Why isn't this 'low inflation' translating into the economic relief we desperately need? Let's unpack this silent riddle.

What is "Low Inflation," Anyway?

First, a quick refresher. Inflation is simply the rate at which the general level of prices for goods and services is rising, and consequently, the purchasing power of your currency is falling. When economists say inflation is "low," it means that, on average, prices across a basket of goods and services are increasing at a slow pace compared to previous periods. The Consumer Price Index (CPI), released by the Kenya National Bureau of Statistics (KNBS), measures this.

Currently, key contributors to this overall figure include:

• Food and Non-Alcoholic Beverages which hold a big weight in your daily spending

• Transport

• Housing, Water, Electricity, Gas and Other Fuels

While the overall average might be low, the devil, as they say, is in the details.

The Elephant in the Room: Suppressed Demand & Economic Fatigue

The biggest reason low inflation isn't feeling like good news is that it's largely a symptom of suppressed demand and a shrinking formal economy, not booming prosperity.

• Less Money, Less Spending: Many Kenyans simply don't have enough disposable income to spend freely. Companies, including some major multinationals, have been downsizing or even exiting Kenya, leading to job insecurity and a significant drop in formal job creation. If people are worried about losing their jobs, or if their incomes are stagnant, they cut back on spending and when demand falls, prices don't rise as fast. It's like a shopkeeper not raising prices because customers aren't coming in.

• Income Erosion: Even for those who are employed, real incomes are shrinking. Mandatory deductions like the Social Health Insurance Fund (SHIF), the Affordable Housing Levy, and increased NSSF contributions, combined with existing taxes, mean less take-home pay. So, even if prices aren't skyrocketing, your purchasing power has already been eroded by these deductions.

 Where Your Money REALLY Goes

While the overall inflation figure averages across many items, certain essential costs that hit daily household budgets remain stubbornly high, regardless of the headline number:

• Food Price Shocks: The "Food and Non-Alcoholic Beverages" component is a big part of inflation, but this average can be misleading. While some food prices might stabilize, others particularly essential staples like maize flour, vegetables, or milk can experience sharp price spikes due to climate-related disruptions or supply chain issues. For low-income households, who spend a huge portion of their income on food, these specific spikes hit hard.

• High Fixed Costs: Rent, electricity bills, water, and transport fares often remain high or continue to increase, eating up a disproportionately large share of household income. These aren't as volatile as, say, electronics prices, but their consistent high level means less money for everything else.

• Education Costs: As we've discussed, school fees and related expenses continue to be a massive burden on parents, especially with government capitation being reduced. This is a non-negotiable cost that strains family budgets regardless of the general inflation trend.

The Disconnect: Statistics vs. Reality

So, while economists might point to a CPI figure of 3.8% and say "inflation is low," that single number doesn't capture the full picture of economic well-being on the ground. It doesn't tell you about:

• The person who just lost their formal job and is now struggling in the informal sector.

• The parent juggling school fees and the rising cost of transport to work.

• The family that has cut down on meals or certain food items because specific prices are still too high for their reduced income.

• The small business struggling to get loans due to tight monetary policy, even if the interest rates have seen a slight cut recently.

Low inflation, in this context, can feel like a cold comfort. It suggests stability but often masks deeper issues like economic stagnation, job insecurity, and a widespread feeling that life remains incredibly expensive.

What's Needed?

While price stability is a good thing for an economy, relying solely on a low inflation rate to gauge national well-being is insufficient. What Kenyans truly need is a holistic approach that includes:

• Robust job creation especially in the formal sector.

• Increased disposable incomes through sustainable wage growth and manageable taxation.

• Targeted interventions to address the high costs of essential goods and services.

• Policies that stimulate genuine economic activity and investment.

The goal isn't just low inflation; it's a thriving economy where every Kenyan feels the positive change in their daily lives. What are your thoughts? Do you feel the "low inflation" in your daily expenses?