Business Activities Fall Amid Rising Prices – Report

Stanbic IBTC Bank’s Purchasing Managers Index (PMI) report has revealed that Nigerian private sector business activities dipped into contraction midway through the third quarter of the year as severe and strengthening price pressures acted to diminish demand.

The report stated that, “both overall input costs and output charges increased to the largest extent since the survey began almost a decade ago. Inflation again reflected higher transportation costs as a result of the removal of the fuel subsidy, plus currency weakness. Rising transportation costs also caused supplier delivery delays. Meanwhile, rates of expansion in both new orders and employment eased and were only marginal.”

The headline PMI dropped for the third month running to 50.2 in August, from 51.7 in July, and was the lowest in the current five-month sequence of improving business conditions. The index signalled only a marginal monthly strengthening of the health of the private sector.

The headline figure derived from the survey is the Purchasing Managers’ Index (PMI). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

According to the report, marked inflationary pressures remained a key hindrance to businesses in August. Overall input costs increased to the greatest extent since the survey began in January 2014 as close to three-fifths of respondents posted a rise over the month.

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Rates of increase in both purchase prices and staff costs accelerated, the latter hitting a new survey peak. Higher transportation costs were central to rising prices, while there were also reports of currency weakness adding to inflationary pressures.

“In turn, companies also increased their selling prices at a record pace, with the rate of inflation surpassing the previous peak from December 2021,” it stressed.

Head of Equity Research West Africa at Stanbic IBTC Bank, Muyiwa Oni stated that, “Nigerian private sector business activity slowed further in August reflecting strengthening price pressures which in turn diminished consumer demand. 

The headline PMI dropped for the third month to 50.2 in August, from 51.7 in July, the lowest in five-month.

“Marked inflationary pressures remained a major hindrance to businesses in August. Both overall input costs and staff costs increased at the largest pace since the survey began. Inflation again reflected higher transportation costs as a result of the removal of the fuel subsidy, and exchange rate devaluation. Rising transportation costs also caused supplier delivery delays.”

He added that, “meanwhile, rates of expansion in both new orders and employment eased and were only marginal. Consequently, companies also increased their selling prices at a record pace, with the rate of inflation surpassing the previous peak from December 2021.”

Stanbic IBTC Bank further explained that “companies continued to expand their purchasing activity, with stocks of inputs rising accordingly. There were some difficulties in the receipt of inputs caused by high transportation costs. As a result, suppliers’ delivery times shortened only fractionally in August, following a period of marked improvements in recent months.

“Business sentiment picked up from the previous survey period’s record low, but was still historically weak. Those panellists predicting a rise in output over the year ahead often linked this to business expansion plans and advertising activity.”