Price Inflation Drags Business Confidence to 9-Year Low
In Nigeria, price inflation remains a deal breaker for private sector performance in the month of July, the Stanbic IBTC purchasing manager index (PMI) shows as business confidence hit a new low.
In the latest release by S&P Global, steep price pressures acted to limit the pace of growth in the Nigerian private sector in July. Overall input costs rose at a pace unsurpassed in more than nine-and-a-half years of data collection, with selling prices up rapidly in response, according to a PMI report obtained today.
The report explained that rising price pressures impacted demand, with growth of both new orders and business activity softening as the second half of the year got underway. The National Bureau of Statistics reported that inflation rose to 24.08% in July.
Meanwhile, business confidence hit a new low, the PMI revealed that there was more positive news on the employment front. It said the rate of job creation quickened to the fastest since January.
The headline PMI posted above the 50.0 no-change mark for the fourth month running in July and thereby signalled a further improvement in business conditions in the Nigerian private sector during the month.
That said, at 51.7 the index was down from 53.2 in June and pointed to a modest strengthening of operating conditions that was the least pronounced in the current expansionary sequence.
The softer improvement in the health of the private sector reflected trends in output and new orders during July. In both cases, rates of growth eased to the weakest since the respective returns to expansion following the cash crisis at the start of the year.
While some firms reported having been able to secure new contracts amid rising customer numbers, others highlighted the negative impact on demand of rising prices.
The report said July data signalled a steep increase in overall input prices, with the rate of inflation the joint-fastest since the series began in January 2014, equal to that posted in November 2021.
It is noted that purchase costs were a key driver of overall input price inflation. Higher fuel costs following the subsidy removal and currency weakness were the main factors leading purchase prices to rise.
Meanwhile, staff cost inflation hit a six-month high as firms increased pay to help staff deal with rising transport costs. With input costs up rapidly, companies increased their output prices accordingly, and at one of the strongest rates on record, according to PMI report for July.
It hinted that more than half of companies increased their charges over the month. More positively, employment increased for the third month running in July, and at a solid pace that was the fastest since the start of the year.
PMI report said backlogs of work continued to rise in the private sector, however, some firms reported delays while checks were made to make sure customers were able to pay for orders.
Buying and stocks of purchases rose further, but rates of increase softened. Finally, business confidence continued to trend downwards in July and was the lowest in just over nine-and-a-half years of data collection.
Speaking about the result, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank commented: “Stanbic IBTC headline PMI posted at 51.7 in July down from 53.2 in June, indicating a modest improvement in private sector business conditions.
Oni said the softer improvement in the health of the private sector was driven by softer growth in output and new orders in July. Notably, rates of growth eased to the weakest for both output and new orders.
“Elevated price pressures largely limited the pace of growth in business sector activities in the Nigerian private sector during the month. Overall input costs rose at a record high level while selling prices spiked rapidly in response”.
Consequently, business confidence hit a new low, being the lowest in just over 9 years of data collection.
“Indeed, inflation rose by less than expected in June, to 22.79% year on year, from 22.41% in May. Core inflation rose by 22 basis points, to 20.27% year on year, while food inflation rose by 43 basis points to 25.25%.
On a monthly basis, inflation rose by 19 basis points, to 2.13%, with the food, transport and utility sub-basket driving the increase in headline inflation. On an annual basis, transport inflation rose the fastest of the inflation sub-baskets, by 96b basis points, to 24.86%.
“We had expected inflation to rise faster due to the removal of the petrol subsidy and its impact on transport inflation. The National Bureau of Statistics has however clarified that the June inflation data only accounts for the first and second week in June.
“Near term, inflation may still rise further due to the lagged impact of higher transport costs across the various inflation sub-baskets. Petrol prices have recently been increased further by about 18%. We still see inflation ending the year closer to 27% levels, given the second-round effects of higher transport and food prices”, Oni said. #Price Inflation Drags Business Confidence to 9-Year Low -PMI
