Kenya's economic outlook for August 2025: 4.1% inflation, declining PMI, and what this means for the USDKES

The Kenya National Bureau of Statistics announced that the country's annual inflation rate increased to 4.1% in July 2025. Although this is not a high figure and is within the target range of the Central Bank of Kenya, it indicates the pressure on the nation’s economy[1]. This rise in Kenyan inflation reflects broader economic vulnerabilities.

Over the last year, the leading cause of inflation has been the increasing prices of food and non-alcoholic beverages, transport, housing, water, electricity, gas, and other fuels.

This strain on the economy is not only due to inflation, but Kenya’s PMI (Purchasing Managers’ Index), which is also under strain. 

This financial crisis has become a major concern to investors and FX traders who are keenly watching its possible effect on the USDKES currency pair, and aligning their investment strategies accordingly, especially in light of persistent Kenya inflation pressures. 

Concerns about inflation surge

Kenya's inflation rate increased to 4.1 percent in July after reaching 3.8 percent in June. This 0.3 percent increase is the most powerful in recent months and indicates possible pressure on consumer purchasing power and monetary policy.

However, Kenya's struggle with inflation did not begin this year. The country experienced its highest recorded rate in 2023, when inflation reached 9.2%, the highest in decades. However, the government and the CBK were able to keep it under control, thanks to the combination of monetary tightness and good weather conditions that increased food supplies. 

This recent increase could not have come at a worse time, though. With the global economic situation on an unstable footing, higher commodity prices, and supply chain shocks, East Africa’s economy is under pressure. In this already hostile environment, Kenya is facing an even more precarious situation than its regional peers due to heightened inflation risks. 

Although the 4.1 percent rise is still within the CBK’s 2.5% to 7.5% range, it is still creeping towards 5%, which the CBK believes is the best percentage for economic stability. The reality is that the Central Bank of Kenya might be forced to consider some policy adjustments, particularly when inflation goes beyond the 5% mark. 

These policy changes might involve interest rate increases or budgetary actions to keep prices stable. Notably, the CBK has started to take steps. The institution lowered its benchmark lending rate by 25 basis points in order to ease monetary policy while Kenya’s inflation remains well within target.

PMI goes below the critical threshold 

An increase in inflation rates is not the only concern for the Kenyan economy. The manufacturing sector has also shown signs of decline. This is evident in the decreasing manufacturing PMI. 

Kenya's PMI dropped from 48.60 points in June to a concerning 46.80 points in July. The general sentiment is that anything below 50 points signals a decline, hence the change in trading strategies by investors and FX traders alike. 

The Stanbic Bank Kenya PMI report noted that “the index signaled a solid downturn in the health of the private sector economy [2]. Moreover, this marked the sharpest decline in operating conditions since July 2024. The decline was largely concentrated in the manufacturing and services sectors, conflicting with higher output across agriculture, construction, and wholesale and retail." 

The report further noted that input cost inflation rose during July. Driven by a steep increase in fuel prices, inflation, sustained protests, and higher tax payments. Most manufacturers had to reduce their output due to poor sales and cash flow problems, adding to Kenya’s inflation concerns across industries. 

Impact of economic decline on USDKES

One would expect the Kenyan shilling to suffer in the face of adversity. Regardless of the unfavourable macroeconomic environment, the USDKES exchange rate has been relatively stable in 2025. As of  22 August 2025, the USDKES is pegged at 1:129.2 Kenyan Shillings. 

For consumers and investors, this rising inflation trend and falling PMI have the potential to exert pressure on the KES in the short term. It might bring forth aggressive monetary tightening, and though this might be beneficial to the KES in the medium term, it can affect economic growth, job losses, and consumer spending. 

Investors and market analysts can expect mild KES weakening against the USD. With the low PMI and CBK reducing its benchmark for the seventh time in a row, investors may find Kenya less attractive [3]. This has the potential to weaken FX inflows.

Conclusion 

Rising inflation and declining manufacturing PMI will create a challenging environment for Kenya's economy in August 2025. Further rate cuts by the CBK will indicate growth support in the face of low inflation. 

The USDKES exchange rate has been stable, but this does not mean that it cannot fluctuate and place added pressure on the Kenyan shilling. It is the responsibility of traders and investors to monitor the economy and adjust their strategy accordingly.  

To gain a better understanding of trading strategies and market changes, you can check out the Exness blog. Traders can also try out new strategies at no cost using the Exness demo account. With this demo account, you can test your trading strategies without incurring losses. 

Disclaimer: Please note that Exness does not currently offer USDKES as a forex trading instrument. The information in this article is provided for educational and informational purposes only and should not be considered investment advice.

This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.