Nigeria Sees Sharp Rise in Prices as FX Adds to Cost Pressures -PMI
Amidst double digit high inflation rate record, Nigeria’s producers raised selling prices of their output strongly as foreign currency (FX) scarcity adds to companies costs pressures at the year end in 2022. This signal inflation rate trouble is unlikely to abate in the firsrt quarter of 2023.
Customer demand improved again in the Nigerian private sector, supporting further rapid increases in both new orders and business activity, according to Stanbic IBTC Purchasing Manager Index released by S&P Global.
In turn, firms took on additional staff, albeit only slightly, PMI report indicates, noting that currency weakness continued to exacerbate cost pressures.
Subsequently feed through to the second-fastest rise in selling prices since the survey began in 2014. The headline PMI reached 54.6 in December, up from 54.3 in November and signaling a marked monthly improvement in business conditions across the Nigerian private sector.
Moreover, it is noted that operating conditions strengthened to the greatest extent since April 2022. The rate of growth in new orders quickened to an eight-month high in December, linked by firms to stronger customer demand.
With customer numbers and new orders rising, firms also increased their business activity at a sharper pace at the end of last year, PMI report indicates.
It shows that output rose across each of the agriculture, manufacturing, wholesale & retail and services sectors. Improvements in demand were sustained despite ongoing strong inflationary pressures.
In particular, purchase costs increased at the fastest pace in four months amid rising prices for fuel and raw materials, exacerbated by currency weakness.
In turn, companies increased their own selling prices at a much faster pace, and one that was only surpassed by that seen in December 2021. Policies to help staff with higher living costs, particularly those related to transportation, as well as efforts to motivate staff led firms to raise salaries solidly again.
PMI report reads that companies also increased employment levels to try to alleviate some pressure on existing staff members, though workforce numbers were up only slightly overall.
Purchasing activity rose sharply again, but the rate of accumulation in inventories softened to a 22-month low amid cost pressures and the use of inputs to support output, it added.
Meanwhile, suppliers’ delivery times shortened to the least extent since July 2022. “While prompt payments and competition among vendors led deliveries to speed up, fuel scarcity reportedly caused delays in some cases”.
Business confidence remained relatively muted, rising from November’s series low but still the second weakest on record, according to the report. It is noted that those firms that expressed optimism linked this to planned investment and business expansions.
Speaking to the report, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, “The headline PMI rose 54.6 in Dec, up from 54.3 in Nov which continues to reflect an improvement in private sector business conditions”.
Oni stated that the improvement was essentially driven by stronger customer demand which consequently resulted in new orders growth rate reaching an 8-m high in Dec.>>Naira, External Reserves Slump amidst Rising FX Demand
As a result of the higher level of demand, firms increased business conditions and output levels across various sectors (agriculture, manufacturing, wholesale & retail and services sectors).
“Remarkably, stronger demand was sustained despite persistent inflationary pressures. Notably, purchase costs increased at the fastest pace in 4-m leading to companies increasing their output prices.
Throughout the year 2022, headline inflation continued to rise till it reached 21.47% year on year in Nov, driven by elevated energy and food prices, exacerbated by the Russia-Ukraine crisis.
“In near term, inflation will likely remain elevated, significantly above the central Bank’s target range of 6% -9%, which would keep the monetary policy authorities hawkish aiming at containing surging price level”, Oni added. # Nigeria Sees Sharp Rise in Prices as FX Adds to Cost Pressures -PMI
