Kenya’s inflation rate stood at 4.1 percent in April 2025, up slightly from 3.6 percent in March and within the Central Bank’s medium-term target range of 5.0 percent. At face value, this may suggest that the economy is on stable footing.
But the headline number hides a more unsettling reality. The low inflation is not the result of rising productivity or growing consumer confidence. It reflects shrinking household demand, falling incomes, and a widespread reliance on informal work and digital credit. The appearance of calm conceals an economy under strain and a population navigating financial exhaustion.
Inflation in a healthy economy tends to rise alongside increases in wages, business activity, and consumption. It reflects confidence. In Kenya, however, the current low inflation reflects a collapse in spending power.
Data from the Kenya National Bureau of Statistics shows significant declines in retail purchases across major categories such as food, clothing, electronics, and essential household items. The reason is not consumer caution. It is that millions of households no longer have the means to spend.
This collapse in demand is closely tied to the weakening of Kenya’s formal job market. The 2025 Economic Survey shows that only 75,000 formal jobs were created in 2024, a sharp drop from 122,900 the year before.
By contrast, 90 percent of the 782,300 new jobs created last year were in the informal sector. Today, just 3.2 million Kenyans are formally employed, while over 17 million are in informal employment. These informal roles offer little in terms of job security, benefits, or upward mobility. They are not the engines of inclusive growth. They are mechanisms of survival.
The consequences of this shift are visible across the economy. Businesses are struggling with reduced sales, and the rate of firm closures is accelerating. Between 2019 and 2023, more than 9,400 companies were deregistered. In 2024 alone, over 130 companies either shut down or scaled back operations.
These include major multinationals such as Nestlé and Bayer as well as prominent local firms like Sendy, which had once symbolised Kenya’s tech-driven optimism. The private sector is thinning out, and with it, so are the pathways to sustainable employment.
At the household level, the pressure is mounting. Even for those in formal employment, statutory deductions have tightened already squeezed incomes. Since February, workers have been contributing 2.75 percent of their gross pay to the Social Health Insurance Fund, 1.5 percent to the Housing Levy, and higher rates to the National Social Security Fund.
According to the Institute of Public Finance Kenya, these deductions have reduced the average net pay for a middle-income employee from Sh41,000 to Sh36,800. This sharp decline in disposable income is forcing many families to make difficult choices on food, school fees, rent, and transport.
As incomes fall short, a growing number of households have turned to mobile credit to fill the gap. Platforms like Fuliza, M-Shwari, Tala, and Branch have become central to everyday financial survival.
Originally introduced to promote financial inclusion, these services are now being used to fund basic consumption. Safaricom’s annual report shows that Fuliza disbursed Sh981.6 billion in the year ending March 2025, up from Sh833.8 billion the year before. These are not loans for business investment. They are loans for groceries, school expenses, and commuting.
This reliance on short-term credit is not without consequences. Digital loans often come with high interest rates, ranging between 18 and 45 percent annually. Many also impose punitive penalties for late repayment. The result is that low-income earners are becoming trapped in a cycle of borrowing and repayment, with no real escape.
Meanwhile, traditional bank loans remain out of reach for many. Even after the Central Bank lowered its policy rate to 10 percent, lending conditions have not eased. The Kenya Bankers Association reports that only 41 percent of SME loan applications were approved in 2024, largely due to irregular incomes and high risk of default.
Kenya’s low inflation, then, is not a sign that the economy is under control. It is a reflection of muted demand, constrained incomes, and deepening financial vulnerability. When people stop spending, not because they are saving, but because they cannot afford to buy, inflation will naturally stay low.
But this kind of stability is illusory. It conceals the growing fatigue of an economy where growth is not translating into prosperity.
Policymakers must recognise that low inflation is not automatically good news. The goal should not be to chase low inflation in isolation. It should be to build an economy where inflation remains low because productivity is rising, jobs are being created, and households are confident enough to spend.
That is not where Kenya is today. Without decisive action to stimulate demand, regulate digital credit, and protect workers from further income erosion, the current calm will become a long-term stagnation.
As the country prepares for the coming electoral cycle, the temptation to rely on populist relief measures such as subsidies or tax holidays will grow. But these short-term fixes will not resolve the underlying crisis. Kenya needs a more strategic response that focuses on rebuilding formal employment, easing pressure on household incomes, and restoring the health of the economy.
The writer is a researcher at Mashariki Research and Policy Centre. [email protected]
