Quarterly Economic Reports.

MACRO ECONOMIC OVERVIEW (MAY 2026).

The Kenyan economy entered the second quarter of 2026 with mixed signals. While GDP growth is projected at 5.4% (up from 5.1% in 2025), this growth has bypassed the majority of workers.Kenya’s inflation has accelerated for the second month running in May, hitting its highest in more than two years, largely due to fuel price hikes, linked to the Iran war hurting workers’ disposable income.

The jump in inflation will hit workers hard amid reports that the cost-of-living measure has wiped out the marginal pay rises employers have offered workers in the past five years, since its now near the top of the governments preferred 2.5% and 7.5% range.Inflation surged to 6.7 % with the overall Consumer price Index (CPI) rising to 154.56in May 2026 from an inflation rate of 5.6% and CPI of 152.15 in April 2026. This represents a monthly inflation rate of 1.6%. This rate is the highest since January 2024, when it stood at 6.9%.

1The price increase was primarily driven by a rise in prices of items in the; Food and Non-alcoholic beverages category by (9.4%) year on year. Month on month, vegetables saw significant spikes; tomatoes increased by 11.2%. spinach by 5.2% and cabbages by 5.0%. Transport category recorded the highest annual pump at (16.5%). Between April and May, petrol increased by 8.4% and diesel by 18.4%. Housing, water, electricity, gas and other fuels category experienced a rise of (3.4%) year on year. Household kerosene/paraffin prices jumped 25.3% month on month, though electricity prices experienced a slight decline.

The spike in energy costs is expected to reduce the Central Bank of Kenya’s room for further cuts on benchmark rate, a prospect that will freeze the drop-in lending rates.FIG.1 overall CPI May 2025 – May 2026Fig 2. Inflation trends May 2025- May 2026 Kenya’s public debt has risen to sh. 12.83 trillion at the end of March, up from sh. 12.29 trillion in December adding more than half a trillion shillings within a single quarter. Domestic debt accounted for a sh. 7.15 trillion rise from sh. 6.81 trillion in December. The rapid debt increase is a warning sign for workers who will likely face, higher taxes, reduced disposable income, wage stagnation and job insecurity.2 Therefore, there is a need for responsible fiscal management by the government, fair treatment by employers and proactive solidarity among workers.

This is by shifting Kenya’s economic model away from debt-driven consumption toward productive investment, with workers well- being as the central criterion.INDUSTRY PERFOMANCE- MAY 2026.The agricultural sector in Kenya experienced a mixed and highly uneven performance, acting simultaneously as a major driver of National economic scale and a central distributor to rising cost-of-living pressures.

3 The sector’s real-time dynamics throughout May 2026 reflect distinct sectoral triumphs, structural export bottlenecks and macroeconomic headwinds.In this month, we have seen mass layoffs in the textile sector (due to lack of export competitiveness) despite the existence of the AGOA and continued contract renewal delays. Despite Kenyan textile factories exporting a record 148 million apparel pieces to the U.S. in 2025, total earnings fell, sparking factory restructuring and downsizing. Companies are struggling with thinner margins and aggressive competition from Asia.In addition, there has been a decline in the Kenyan Public services (health, Education and water).

This is due to aggressive digitization mandates, deepening fiscal strain and efforts to contain the wage bills. This has resulted to workers facing; tighter accountability, hiring freezes for certain cadres alongside hundreds of targeted specialized openings, and increased pressure to boost productivity amid rising living costs.2The Kenyan transport sector experienced extreme, unprecedented volatility, driven by a record-breaking fuel price adjustment that triggered major civil strikes and directly drove national inflation to a two-year high. While long-term infrastructure and regional aviation saw steady policy milestones, domestic transit and logistics faced major real-time bottlenecks.

The Hospitality and tourism sector was characterized by strong institutional tailwinds, policy updates and record-high annual growth baselines, even as properties navigated real-time margins against domestic fuel inflation and the shoulder-season travel lull. The sector enters mid-2026 generating roughly Ksh. 500 billion in baseline revenue, fueled by s surging national footprint of 2.55 million international arrivals and 5.2 million domestic travelers.3 The Kenyan private sector revealed a landscape under deep strain, marked by a prolonged contraction in business activity, compounding cost shocks and a defensive corporate environment.

It was noted that private firms are caught between global macroeconomic disruptions and highly aggressive domestic fiscal policies.FIG 3, key drivers on inflation 1KEY EVENTS IN THE MONTH OF MAY 2026.General Minimum Wage increment: The president officially announced a 12% increase in the general minimum wage for Kenyan workers. This mandate aims to insulate households from high cost-of-living premiums and inflation pressures.Agricultural Wage Boost: Recognizing the distinct hardships and critical contributions of farm laborers, agricultural workers secured an even higher 15% baseline wage increase.Infrastructure Theme Alignment: Held under the theme “Kenya workers support the Northern Link accelerating trade through the Rironi-Malaba highway transformation,” COTU-K formally endorsed major state logistics projects designed to spur cross-border employment.

REPORT BY;AGNES MUKAMI MURITHI

PROGRAMMES OFFICER COTU(K)

MACRO ECONOMIC OVERVIEW (MAY-AUGUST) 2026

The Kenyan economy entered the second half of 2026 navigating a persistent cost-of-living crisis, despite a modest upward revision of GDP growth to 5.6% for the second quarter (up from 5.4% in Q1). The growth, however, remained elite-captured, with the majority of workers facing eroded real wages, rising household debt, and heightened job precarity.Inflation remained stubbornly elevated throughout the four-month period.

After hitting 6.7% in May (a two-year high), the headline inflation rate peaked at 7.2% in July, before easing slightly to 6.9% in August, as fuel price adjustments moderated and a favourable harvest season brought partial relief to food prices.Key drivers:Transport inflation averaged 17.8% year-on-year over the period, driven by two fuel price reviews (June and August) a cumulative 12% to petrol and 21% to diesel prices.Food inflation remained above 9% until July, when a brief maize harvest dip brought the year-on-year rate to 8.7% in August.Housing and energy costs surged, with kerosene/paraffin prices rising 28% month-on-month in June, though electricity tariffs saw a 3% cumulative decline due to improved hydro-generation.Public debt ballooned further. By the end of June 2026, Kenya’s total public debt stood at Sh. 13.21 trillion, up from Sh. 12.83 trillion in March – this amount equals 68.5 percent of the country’s Gross Domestic Product (GDP), which remains well above the International Monetary Fund threshold of 50 percent for developing nations.

Domestic debt accounted for Sh. 7.48 trillion. The rapid accumulation signals that workers will face higher taxes, reduced public services, and a weakened social wage in the coming fiscal year.Central Bank response: The Monetary Policy Committee (MPC) held the benchmark rate at 11.50% through the period, citing inflation risks and limited room for easing. Lending rates remained near 16.5%, constraining private sector credit and household borrowing.

INDUSTRY PERFORMANCE – MAY TO AUGUST 2026.Agriculture;The sector remained a mixed bag.Positive: Maize harvest in July–August restored some stability to flour prices, reducing monthly food inflation to 0.4% in August.Negative: Cash crop farmers (tea, coffee, flowers) faced falling export prices due to a global recession in Europe, while input costs (fertilizer, fuel) stayed high.Labour impact: Casual farm wages rose only 5% against a 15% agricultural minimum wage hike decreed in May, indicating widespread non-compliance.

Textile & Apparel;The crisis deepened.May: Mass layoffs reported (approx. 4,000 jobs).June–August: Factory closures continued. By August, seven export processing zone (EPZ) textile firms had suspended operations, citing rising energy costs (50% of input), Asian competition, and delayed renewal of AGOA preferences due to US political uncertainty.Transport;Volatility persisted.

June: A nationwide strike by matatu operators (7 days) following the fuel price hike on June 15 led to loss of Sh. 3.2 billion in daily economic activity.July: Government brokered a deal for a 10% fare increase but no fuel tax reduction.August: Fuel prices stabilized after a global OPEC+ agreement, but diesel remained 22% higher than January 2026.Aviation: International arrivals continued strong (2 million by August), but domestic cargo logistics faced 24% higher operating costs.Hospitality & Tourism;Record performance continued, but margins tightened.

Revenues hit Sh. 550 billion by end of Q2 (up 10% year-on-year).International arrivals reached 3.1 million by August, driven by Chinese and Middle Eastern markets.Worker pain: Despite high occupancy, hoteliers resisted wage increases beyond the 12% minimum. Many casual workers remained on zero hour contracts, and the cost of staff meals and transport eroded their take-home pay.Public Services (Health, Education, Water);Austerity bites deeper.Hiring freeze extended to all non-essential cadres.

Digitization mandate; Kenya’s aggressive transition of thousands of public services onto online platforms like the eCitizen portal has driven massive revenue collection and faster transaction times, but it has also widened social exclusion, increased digital security risks, and created operational bottlenecks for vulnerable populationsHealth; focused heavily on rolling out Universal Health Coverage (UHC) reforms through the Social Health Authority (SHA), advancing primary care networks, and preparing for the landmark Kenya Health Summit 2026 scheduled for August 18–19 at KICC in Nairobi.

Education: saw major developments, highlighted by a record Sh784.5 billion budget allocation for the 2026/2027 fiscal year, the introduction of six sweeping reform Bills in Parliament targeting higher education funding and basic education rules, and preparations for the third school term Private Sector;Contraction continued.PMI (Purchasing Managers’ Index) remained below 50 (contraction) for the entire period.Cost pressures: Fuel, power, and imported raw materials pushed operational costs up by 18%.Employment: Net job losses estimated at 45,000 across manufacturing, retail, and construction.Firm closures: At least 120 SMEs closed in Nairobi alone between June and August.

Report by;

Agnes Mukami Murithi

Programmes Officer.