Purchasing Power Drops Further Amid Higher Fuel Costs, Currency Weakness

The Stanbic IBTC’s Purchasing Power Index, (PMI) dropped to 51.7 points amid higher fuel costs and currency weakness in July, 2023.

This was stated in the report released by the bank, saying, “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.”

It, however, said, 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.

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, overall input costs increase at the joint-fastest pace on record lowest business sentiment in survey’s history.

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“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. Rising price pressures impacted demand, with growth of both new orders and business activity softening as the second half of the year got underway,” it pointed out.

It added that, “meanwhile, business confidence hit a new low. There was more positive news on the employment front, however, as the rate of job creation quickened to the fastest since January.

“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.”

It further 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 with that posted in November 2021. 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.”

It explained that, “with input costs up rapidly, companies increased their output prices accordingly, and at one of the strongest rates on record. 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. Backlogs of work continued to rise, however, as some firms reported delays while checks were made to make sure customers were able to pay for orders.

“Input buying and stocks of purchases rose further, but rates of increase softened. Also, business confidence continued to trend downwards in July and was the lowest in just over nine-and-a-half years of data collection.”