Sharp Costs Pressures Burden Private Sector Activity –PMI
Private sector activity growth slows in March due to increased costs pressures amidst price hikes, according to the Stanbic IBTC purchasing manager index released by IHS Markit report.
The report indicates that business conditions in Nigeria’s private sector continued to improve solidly at the end of the quarter, but the rate of growth slowed from February.
Softer uplifts in output, new orders, stocks of purchases and employment were drivers of the latest moderation, it reads.
Nonetheless, it was noted that growth remained elevated by historical standards and firms continued stockpiling efforts in anticipation of greater demand over the coming months.
Meanwhile, sharp cost pressures persisted, with cash shortages and price hikes again apparent. In turn, selling prices rose at one of the quickest rates in the surveys near eight-and-a-half-year history.
At 54.1 in March, down from 57.3 in February, the latest expansion pointed to a softer, yet solid, improvement in business conditions, the report said.
Growth has now been seen in each of the last 21 months.
“While demand conditions were favourable in March, firms reported softer inflows of new orders. Cash shortages and surging prices were commonly associated with moderation.
“That said, the rate of expansion was still sharp. Mirroring the trend for new orders, output levels at Nigerian private sector firms expanded sharply”.
According to the report, all four of the monitored sub-sectors recorded marked upticks.
It noted that manufacturers led the expansion, followed closely by services. Agriculture and wholesale & retail followed, respectively.
“Sustained increases in output and demand-led firms to raise headcounts for the fourteenth month in succession. The rate of growth was modest and broadly in line with the long-run series average.
“Subsequently, backlogs fell sharply. Greater competition amongst vendors led to another shortening of lead times during March.
“Meanwhile, firms continued advance ordering strategies amid efforts to protect against input shortages as well as mitigate against paying higher prices.
“The rate of stockpiling was sharp but softer than those seen in the previous six months. As for prices, rising wages, fuel and raw material costs continued to exert upward pressures on overall input price inflation.
“In fact, the rate of increase was sharp and the fourth-strongest in the series history. Firms opted to pass on higher cost burdens by raising their selling charges at a quicker pace”, Stanbic PMI report stated.
Despite concerns over inflationary pressures, firms remained upbeat about their prospects for output growth over the coming year, with sentiment improving from February.
Speaking to the report, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, the Stanbic IBTC PMI continued to signal expansion in private sector activities.
Indeed, the PMI reading moderated to 54.1 in March from 57.3 in February, showing a relatively softer growth in output, new orders, employment, and quantity of purchases indexes amid continued price pressures, he added.
“We believe inflation could remain sticky in near to medium term given the current geopolitical tensions and its impact on global commodity prices and supply chain.
“Headline inflation rose by 0.1ppt to print at 15.7% in February. Core inflation rose to 14.01% year on year, from 13.87% in Jan, while food inflation was sticky at 17.11%, from 17.13% in Jan.
“Indeed, with lingering crisis and commodity prices being high, it would naturally bump up the cost of production, especially for flour mills facing sharply rising global grain prices.
“Energy costs such as diesel, gas and jet fuel are also elevated. Such input price pressures would ultimately be passed on to consumers, creating an upward risk for inflation in the near term. However, we still see inflation averaging about 15% in 2022”, Oni said. #Sharp Costs Pressures Burden Private Sector Activity –PMI
