Nigeria’s Purchasing Managers’ Index (PMI) saw a marginal uptick in August rising from 49.2 to 49.9 on the back signalling a slight improvement in business conditions but renewed inflationary pressures continue to hinder the growth of businesses.
This is according to the Stanbic IBTC Purchasing Managers’ Index for the month of August 2024 which revealed that business conditions in the month were relatively stable.
The report indicates that business conditions in the Nigerian private sector remained largely unchanged in August. While there was a slight uptick in new orders, the growth rate was modest and did not lead to an increase in overall business activity, which experienced a slight decline.
Despite this, the report noted that employment levels continued to rise as companies processed outstanding business more efficiently.
According to the report, input costs surged once again midway through the third quarter, with the rate of purchase cost inflation reaching a five-month high due to rising prices for materials and transportation, further intensified by currency depreciation.
In response to escalating living costs, businesses raised staff wages, contributing to higher overall costs. These increased input costs were frequently passed on to customers, leading to the most significant rise in output prices in five months.
Furthermore, the Stanbic PMI in August noted that a combination of sharply rising material costs and subdued demand prompted firms to cut back on purchasing activities, resulting in a decrease in input stocks for the first time in 17 months.
Excluding the COVID-19 pandemic period, this reduction in inventories was among the most pronounced on record. Meanwhile, supplier lead times continued to improve.
The report states, “Input costs rose rapidly again midway through the third quarter. The rate of purchase cost inflation hit a five-month high amid increases in prices for materials and transportation, with cost pressures exacerbated by currency weakness.”
“Sharply rising material costs and muted demand led firms to scale back purchasing activity, while stocks of inputs decreased for the first time in 17 months. Moreover, the reduction in inventories was one of the sharpest on record, if the COVID-19 pandemic months are excluded. Meanwhile, supplier lead times continued to shorten”
More Insights
- Businesses reporting renewed inflationary pressures contrasts with the inflation report in July which revealed that inflation for the month slowed to just over 33%- the first time in 19 months dating back to December 2022.
- The attribution to exchange rate weakness seems plausible as the naira currently trades around N1600/$- on the official NAFEM window.
- Furthermore, firms reporting increases in staff salaries reveal a reaction to the new minimum wage law which was signed into law by the President at the end of July 2024.
