Price pressure drives PMI to seven-month low

The Stanbic IBTC Purchasing Managers Index dropped to a seven-month low on the back of subdued demand and price pressures.

The monthly PMI, which was released on Monday, indicated that the headline figure derived from the survey declined to 50.1 points in June from 52.1 in May, the lowest in seven months.

Commenting on the report, the Head of Equity Research West Africa at Stanbic IBTC Bank, Muyiwa Oni, said, “The Stanbic IBTC headline PMI dropped to a seven-month low of 50.1 points in June from 52.1 in May due to moderation in domestic demand amid the intensification of price pressures, leading to slowdowns in growth of output and new orders. Notably, new orders recorded a near-stagnation as new business increased only marginally and at the slowest pace in the current seven-month sequence of expansion.

“Besides, financial challenges at customers reportedly limited the ability of firms to fully benefit from any improvement in underlying demand.

“In line with the picture for new orders, output rose at a slower pace during June, settling at its weakest level in four months. Meanwhile, the rate of inflation in overall input prices remained elevated in June, ticking higher for the second month running to the strongest since March.”

According to Oni, close to 60 per cent of respondents posted a rise in input costs during the month.

“In line with the trend in input costs, companies increased their selling prices sharply again in June. The pace of inflation quickened slightly from that seen in May,” he stated.

He added that at the end of the second quarter, private sector activity was weak due to the domestic economy being affected by elevated price pressures, high interest rates and lingering currency weakness.

“The PMI reading in the quarter is consistent with a likely slowdown in the non-oil sector’s growth to 2.6 per cent y/y in Q2:24 from 2.8 per cent y/y in Q1:24. Nonetheless, headline inflation is likely to peak in June, with moderation expected in H2:24 as the year-on-year effects of PMS subsidy removal (which induced higher fuel prices) and significant currency depreciation (which accompanied the FX unification) fade.

“This, in addition to the commencement of the primary harvest season in September, is likely to provide some respite for consumers in H2:24,” he noted.

The report added that while new orders continued to rise in June, the rate of expansion was only marginal and the weakest in the current seven-month period of growth.

Also, companies increased their selling prices rapidly again in June, which the report noted was in tandem with a faster increase in input costs.

“Purchase price inflation was recorded amid currency weakness and higher raw material costs, particularly those related to animal feed. Meanwhile, efforts to help workers with increased living and transportation costs led to a further solid rise in wages,” it indicated.

The Stanbic IBTC Bank Nigeria PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies.