- Kenya experienced a sharp rise in construction costs in Q2 against a backdrop of an already high national inflation rate, which stood at 6.7% in May, driven largely by higher transport and food costs as energy prices remain elevated.
Kenya’s construction sector is grappling with a severe cost shock, with official data showing input prices rising at their fastest quarterly rate since late 2022.
The surge, which is primarily driven by a crippling spike in fuel and transport costs, is heaping pressure on developers, contractors and consumers who must pay for new housing and infrastructure.
According to the Kenya National Bureau of Statistics (KNBS), Construction Input Price Index (CIPI) increased by a sharp 5.73 per cent in the second quarter of 2026, climbing to 126.36 from 119.51 in the first quarter. This is the most significant quarterly jump since the final three months of 2022, official data released on Monday shows.
The primary culprit for this dramatic rise was the sharp increase in the cost of transport, fuel, and lubricants, which leapt by a staggering 21.47 per cent during the quarter. This was underpinned by a 31.16 per cent rise in the fuel and lubricants sub-index alone.
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High fuel prices push up construction costs
KNBS report highlights that fuel price volatility, exacerbated by global geopolitical tensions, has translated directly into higher costs for moving materials and operating construction equipment. According to the Energy and Petroleum Regulatory Authority (EPRA), the average price of a litre of petrol in Nairobi soared from Sh179.69 in Q1 to Sh208.63 in Q2.
The impact of this fuel-driven inflation was felt across the board, with the price of essential building materials and labour also rising sharply. Cement prices increased by 6.99 per cent, while concrete and asphalt rose by 7.25 per cent. Other notable increases included paints (8.43 per cent), ballast (6.16 per cent), and electrical fittings (6.27 per cent).
Cost of labour is also climbing, reflecting increased living costs and competition for skilled workers. Overall labour index rose by 4.38 per cent, with wages for carpenters, painters, welders, and mechanics seeing a particularly sharp increase of 7.51 per cent.
As the cost of building materials and labour simultaneously increase, the economic strain intensifies for developers, who are confronted with the dilemma of absorbing these costs or passing them on to buyers and renters.
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Implication of rise in construction costs on economy
The data points to a worrying trend for the broader economy. This construction cost inflation is occurring against a backdrop of an already high national inflation rate, which stood at 6.7 per cent in May, driven largely by transport and food costs.
With fuel prices remaining elevated, and a private sector survey from Stanbic Bank showing a sharp decline in business conditions and new orders in construction, the sector appears to be in a precarious position. Lower new orders combined with rising costs signal potential margin pressures and project postponements.
In addition, the KNBS report shows that the building cost index rose 5.25 per cent while the civil engineering cost index climbed 6.23 per cent in the second quarter, indicating that both private and public infrastructure projects are being hit. The road construction sector, in particular, is feeling the squeeze, with civil engineering material costs alone rising by 4.69 per cent.
While the construction industry showed some resilience in terms of consumption during the quarter, the sustainability of this is in doubt. If fuel prices remain high and the broader economy softens, Kenya could see a significant slowdown in its construction sector, with long-term implications for employment, housing supply, and the country’s ambitious infrastructure agenda.
