Business Confidence Slumps as Price Pressures Rise–PMI
The removal of the fuel subsidy in Nigeria caused a sharp strengthening of price pressures in June, the S&P Stanbic IBTC purchasing manager index said, causing private sector business confidence to hit yet another bump. As a result, rates of expansion in output and new orders softened but remained marked nonetheless, according to the latest report released today.
PMI reading indicated that business confidence dipped to a near record low. Intensifying inflationary pressures encouraged companies to expand inventories to try and get ahead of further price increases.
Meanwhile, employment was up modestly for the second month running. The headline PMI remained above the 50.0 no-change mark in June.
Although dipping slightly to 53.2 from 54.0 in May, the reading signalled a solid monthly improvement in the health of the private sector, according to the latest data.
“While overall business conditions remained on a positive trajectory, firms faced a much stronger inflationary environment at the end of the second quarter of the year, linked to the removal of the fuel subsidy”.
The index said purchase prices increased at the fastest pace since last August, while the rate of selling price inflation accelerated sharply to the steepest in the year-to-date as firms passed higher costs on to their customers.
It noted that issues around the ending of the fuel subsidy also acted to limit the pace of output growth, according to respondents, although activity was still up markedly in the latest survey period.
“Output has now risen in each of the past three months amid higher customer numbers and growth of new orders. Wholesale & retail bucked the wider trend and posted a drop in activity.
“New business was also up for the third successive month. The rate of expansion was marked, albeit the softest in the current sequence of growth. Higher new orders encouraged firms to expand employment for the second month running, although the pace of job creation was again only modest”.
Despite increasing staffing levels, firms recorded a build-up of backlogs of work, due to an expansion in new business and some difficulties securing inputs. Some companies reported having brought forward purchasing and expanded inventories ahead of predicted increases in costs of materials in the months ahead.
This, allied with increasing workloads, meant that stocks of purchases were accumulated to the largest degree in eight months. Business confidence dropped to the second-lowest on record in June and was only fractionally above last November’s nadir.
Companies remained optimistic that output will increase over the coming year, however, linked to investment, business expansion plans and proposed marketing drives.
Speaking about the latest reading, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank commented: “The Stanbic IBTC headline PMI dipped slightly to 53.2 in Jun from 54.0 in May, which still indicates expansion in private sector business environment”.
On said though overall business conditions remained on a positive trajectory, firms faced a much stronger inflationary environment in June following the removal of the fuel subsidy.
“Input prices increased at the fastest pace since Aug 22, while the rate of selling price inflation accelerated sharply as firms passed higher costs on to their customers. Consequently, rates of expansion in output and new orders softened during the month. Notably, business confidence dipped to a near record low while companies expanded inventories to try and get ahead of further price increases.
“Indeed, petrol pump prices have increased by an average of 176% countrywide. This may drive transport inflation further up (it contributes 7.5% to the inflation basket) as major transportation vehicles ‘intra-state’ use petrol. This may also spill over to inflation sub baskets. We forecast inflation at 27.5% by year-end.” Nigerian Treasury Bills Yield Rises to 7%
