If Inflation Is Down, Why Does Life Still Feel Expensive?
Category: Inflation
By: Vivian Ocholla,
In June 2025, Kenya’s overall inflation rate stood at 3.8%. This was the same rate as it was in May, well within the Central Bank of Kenya’s target range of 2.5% to 7.5%. This means that, on average, prices were 3.8% higher in June 2025 compared to the same month in 2024. The main drivers of this increase were the rising costs of items under Food and Non-Alcoholic Beverages (6.6%), Transport (3.2%), and Housing, Water, Electricity, Gas, and Other Fuels (0.2%). Together, these three categories make up more than 57% of the total weight across the 13 major expenditure groups used to calculate inflation.
On paper, these figures suggest a stable economic environment with relatively controlled price growth as shown in Chart 1 above. But for millions of Kenyans, this narrative does not align with their everyday experiences. Despite the seemingly low inflation rate, the perception remains that the cost of living is still high. Rent, school fees, electricity, transport, and basic necessities continue to put immense pressure on household budgets. For many, a routine visit to the market, a daily commute, or a trip to the clinic still feels like a financial strain painting a much grimmer picture than the numbers alone reveal.
This disconnect between official statistics and real-life experience is not a paradox. It’s an economic signal or a sign that overall inflation may no longer be telling the full story. So what’s really going on?
Inflation, as officially reported, is calculated using the Consumer Price Index (CPI), a measure that tracks price changes in a fixed basket of goods and services. The CPI is weighted based on the average spending habits of Kenyan households and covers items such as food, housing, transport, healthcare, and education. But averages can be misleading. Not all households experience price changes in the same way. While some prices may be stable or even falling, others particularly essential services and fixed costs remain high and unchanged. For example, a low national food inflation rate may mask price spikes in specific counties affected by drought or flooding.
While overall food inflation appears low at 2%, this average masks significant price movements within specific items some of which are essential to daily life. For instance, between April and May 2025, the Food and Non-Alcoholic Beverages Index increased by 1.2%. During this period, prices of potatoes (Irish), oranges, and fresh packeted cow milk declined by 3.7%, 1.8%, and 0.6%, respectively. However, the same data shows that staple items like sugar, sifted maize flour, and kale (Sukuma Wiki) rose by 4.3%, 3.9%, and 3.5%, respectively. The latter are items consumed daily by most households, particularly in low-income communities.
Similarly, while a drop in maize flour prices might offer temporary relief, the cost of other essentials such as electricity, transport, and rent often remains unchanged or continues to rise, taking up a larger share of household income. Urban residents, for example, face the burden of high transport fares and rental costs, while rural families face growing expenses for clean water, mobile money access, and inputs affected by erratic weather patterns. The pressure from these costs is not evenly felt; low-income households, which already spend the bulk of their earnings on basic needs, are affected the most. As a result, the official inflation rate fails to capture this uneven economic burden where the poor feel the squeeze most intensely, even when national figures suggest that prices are under control.
Moreover, several structural factors explain why many Kenyans still feel like life is expensive despite a low inflation rate. First is the issue of stagnant income growth. Many Kenyans, especially those in informal employment or low-wage sectors have not experienced any significant rise in their earnings since the end of the Covid-19 pandemic in 2020. As prices stabilize at higher levels and incomes remain unchanged, the real purchasing power of households continues to erode. This creates a budget constraint, which refers to the limit on what a household can afford given its income and the prevailing prices of goods and services.
In these circumstances, even modest price increases, when not matched by income growth, force families to make difficult trade-offs such as cutting back on food, postponing the payment of school fees, or forgoing medical care. Therefore, despite the low overall inflation rate, the true strain lies in the widening gap between the cost of items and what families can actually afford. This deepens economic hardship and explains why life continues to feel expensive for many Kenyans.
Secondly, there is the phenomenon of base effects, which often distorts the public’s perception of inflation trends. As already discussed above, inflation measures the rate of change in prices compared to the same period in the previous year and not the absolute level of prices. This means that if prices doubled last year due to shocks such as a spike in fuel or food prices, the inflation rate this year may appear lower simply because it is being compared against an already high base.
For instance, if fuel prices doubled in 2024 due to global oil market disruptions, and those prices remained unchanged throughout 2025, the year-on-year inflation in fuel for 2025 would appear to be zero. However, this does not mean fuel has become more affordable; consumers are still paying twice as much as they did in 2023. This statistical quirk can give the illusion that inflation has been tamed, while in reality, the higher price levels impacting welfare persists, especially for essential goods and services.
Thirdly, and perhaps most critically, low inflation in Kenya often coincides with a tight monetary policy stance, which can keep interest rates relatively high. For example, despite the decline in the overall inflation rate to 3.8% in June 2025 from 4.6% in June 2024, the Central Bank Rate (CBR) remains elevated at 9.75 as of June 2025 and the lending rate at 15.44% as of May. This tight monetary stance is meant to anchor inflation expectations and stabilize the exchange rate, especially in the face of global uncertainties and a volatile shilling. However, higher interest rates increase the cost of borrowing for businesses and households, discouraging private sector investment and consumption. This slows down economic activity and undermines job creation which are key factors for improving livelihoods in a country where youth unemployment is already a significant concern.
Conclusions and Recommendations.
The message is clear: relying solely on the Consumer Price Index (CPI) to assess economic well-being provides an incomplete picture. While a low inflation rate may indicate macroeconomic stability, it does not necessarily reflect improvements in people’s daily lives. A more comprehensive approach is needed. One that considers regional price differences, income disparities, and real household spending patterns.
Disaggregating inflation data by income levels, creating a basic cost-of-living index tailored for both urban and rural settings, and comparing price trends to wage growth would yield a deeper understanding of how different groups are coping. At the same time, efforts should focus on increasing income opportunities, simplifying taxation for lower-income earners, and supporting essential services like energy, housing, and transport especially for those most at risk of economic hardship.
There should be an improvement on how economic information is communicated to the public. A low inflation figure can easily be misunderstood as a sign that the cost of living is falling when in reality, it may just mean prices are rising more slowly. Bridging the gap between economic statistics and lived experiences is not just a communication challenge but is a policy imperative. When citizens feel that official data does not reflect their reality, trust in public institutions erodes. This risks weakening support for critical reforms and widening the disconnect between government and society.
In conclusion, even though overall inflation appears low in Kenya today, high borrowing costs, weak job growth, and stagnant incomes combine to create an economic reality where life remains difficult for the majority. This reinforces the need for a policy mix that not only targets price stability but also ensures that monetary policy supports inclusive economic growth. The true lesson is that individual and social welfare should not be inferred from a single statistic, even if the CPI remains an indispensable indicator by itself.
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If Inflation Is Down, Why Does Life Still Feel Expensive?
| Post date: Wed, Jul 9, 2025 |
| Category: Inflation |
| By: Vivian Ocholla, |
In June 2025, Kenya’s overall inflation rate stood at 3.8%. This was the same rate as it was in May, well within the Central Bank of Kenya’s target range of 2.5% to 7.5%. This means that, on average, prices were 3.8% higher in June 2025 compared to the same month in 2024. The main drivers of this increase were the rising costs of items under Food and Non-Alcoholic Beverages (6.6%), Transport (3.2%), and Housing, Water, Electricity, Gas, and Other Fuels (0.2%). Together, these three categories make up more than 57% of the total weight across the 13 major expenditure groups used to calculate inflation.
On paper, these figures suggest a stable economic environment with relatively controlled price growth as shown in Chart 1 above. But for millions of Kenyans, this narrative does not align with their everyday experiences. Despite the seemingly low inflation rate, the perception remains that the cost of living is still high. Rent, school fees, electricity, transport, and basic necessities continue to put immense pressure on household budgets. For many, a routine visit to the market, a daily commute, or a trip to the clinic still feels like a financial strain painting a much grimmer picture than the numbers alone reveal.
This disconnect between official statistics and real-life experience is not a paradox. It’s an economic signal or a sign that overall inflation may no longer be telling the full story. So what’s really going on?
Inflation, as officially reported, is calculated using the Consumer Price Index (CPI), a measure that tracks price changes in a fixed basket of goods and services. The CPI is weighted based on the average spending habits of Kenyan households and covers items such as food, housing, transport, healthcare, and education. But averages can be misleading. Not all households experience price changes in the same way. While some prices may be stable or even falling, others particularly essential services and fixed costs remain high and unchanged. For example, a low national food inflation rate may mask price spikes in specific counties affected by drought or flooding.
While overall food inflation appears low at 2%, this average masks significant price movements within specific items some of which are essential to daily life. For instance, between April and May 2025, the Food and Non-Alcoholic Beverages Index increased by 1.2%. During this period, prices of potatoes (Irish), oranges, and fresh packeted cow milk declined by 3.7%, 1.8%, and 0.6%, respectively. However, the same data shows that staple items like sugar, sifted maize flour, and kale (Sukuma Wiki) rose by 4.3%, 3.9%, and 3.5%, respectively. The latter are items consumed daily by most households, particularly in low-income communities.
Similarly, while a drop in maize flour prices might offer temporary relief, the cost of other essentials such as electricity, transport, and rent often remains unchanged or continues to rise, taking up a larger share of household income. Urban residents, for example, face the burden of high transport fares and rental costs, while rural families face growing expenses for clean water, mobile money access, and inputs affected by erratic weather patterns. The pressure from these costs is not evenly felt; low-income households, which already spend the bulk of their earnings on basic needs, are affected the most. As a result, the official inflation rate fails to capture this uneven economic burden where the poor feel the squeeze most intensely, even when national figures suggest that prices are under control.
Moreover, several structural factors explain why many Kenyans still feel like life is expensive despite a low inflation rate. First is the issue of stagnant income growth. Many Kenyans, especially those in informal employment or low-wage sectors have not experienced any significant rise in their earnings since the end of the Covid-19 pandemic in 2020. As prices stabilize at higher levels and incomes remain unchanged, the real purchasing power of households continues to erode. This creates a budget constraint, which refers to the limit on what a household can afford given its income and the prevailing prices of goods and services.
In these circumstances, even modest price increases, when not matched by income growth, force families to make difficult trade-offs such as cutting back on food, postponing the payment of school fees, or forgoing medical care. Therefore, despite the low overall inflation rate, the true strain lies in the widening gap between the cost of items and what families can actually afford. This deepens economic hardship and explains why life continues to feel expensive for many Kenyans.
Secondly, there is the phenomenon of base effects, which often distorts the public’s perception of inflation trends. As already discussed above, inflation measures the rate of change in prices compared to the same period in the previous year and not the absolute level of prices. This means that if prices doubled last year due to shocks such as a spike in fuel or food prices, the inflation rate this year may appear lower simply because it is being compared against an already high base.
For instance, if fuel prices doubled in 2024 due to global oil market disruptions, and those prices remained unchanged throughout 2025, the year-on-year inflation in fuel for 2025 would appear to be zero. However, this does not mean fuel has become more affordable; consumers are still paying twice as much as they did in 2023. This statistical quirk can give the illusion that inflation has been tamed, while in reality, the higher price levels impacting welfare persists, especially for essential goods and services.
Thirdly, and perhaps most critically, low inflation in Kenya often coincides with a tight monetary policy stance, which can keep interest rates relatively high. For example, despite the decline in the overall inflation rate to 3.8% in June 2025 from 4.6% in June 2024, the Central Bank Rate (CBR) remains elevated at 9.75 as of June 2025 and the lending rate at 15.44% as of May. This tight monetary stance is meant to anchor inflation expectations and stabilize the exchange rate, especially in the face of global uncertainties and a volatile shilling. However, higher interest rates increase the cost of borrowing for businesses and households, discouraging private sector investment and consumption. This slows down economic activity and undermines job creation which are key factors for improving livelihoods in a country where youth unemployment is already a significant concern.
Conclusions and Recommendations.
The message is clear: relying solely on the Consumer Price Index (CPI) to assess economic well-being provides an incomplete picture. While a low inflation rate may indicate macroeconomic stability, it does not necessarily reflect improvements in people’s daily lives. A more comprehensive approach is needed. One that considers regional price differences, income disparities, and real household spending patterns.
Disaggregating inflation data by income levels, creating a basic cost-of-living index tailored for both urban and rural settings, and comparing price trends to wage growth would yield a deeper understanding of how different groups are coping. At the same time, efforts should focus on increasing income opportunities, simplifying taxation for lower-income earners, and supporting essential services like energy, housing, and transport especially for those most at risk of economic hardship.
There should be an improvement on how economic information is communicated to the public. A low inflation figure can easily be misunderstood as a sign that the cost of living is falling when in reality, it may just mean prices are rising more slowly. Bridging the gap between economic statistics and lived experiences is not just a communication challenge but is a policy imperative. When citizens feel that official data does not reflect their reality, trust in public institutions erodes. This risks weakening support for critical reforms and widening the disconnect between government and society.
In conclusion, even though overall inflation appears low in Kenya today, high borrowing costs, weak job growth, and stagnant incomes combine to create an economic reality where life remains difficult for the majority. This reinforces the need for a policy mix that not only targets price stability but also ensures that monetary policy supports inclusive economic growth. The true lesson is that individual and social welfare should not be inferred from a single statistic, even if the CPI remains an indispensable indicator by itself.
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Kenya’s National Budget: A Matatu Ride Reflecting Fiscal Volatility and Structural Inefficiencies
Introduction The matatu metaphor can be used to analytically frame Kenya’s budget as a system that is subject to binding constraints, evolving expectations, and continuous adjustment to shocks. Like the matatu sector, fiscal policy reflects a balancing act between efficiency and quick action seeking to respond to public service delivery while constrained by competing sector […]
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