Soaring prices push Nigeria’s PMI to lowest in seven months

Business activity in Nigeria fell in June to the lowest level in seven months as companies jacked up their prices again, according to the latest Purchasing Managers’ Index (PMI) report.

The country’s headline PMI fell to 50.1 from 52.1 in the previous month, signalling a broad stagnation of the private sector as subdued demand and intense price pressures led to slowdowns in growth of output and new orders, the report by Stanbic IBTC said.

It said although 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.

“There were some reports of underlying demand improving, but sharp price rises meant that customers faced challenges being able to commit to new projects. Companies increased their selling prices rapidly again in June, with the pace of inflation quickening slightly from that seen in May,” it said.

The sharper rise in output prices was in tandem with a faster increase in input costs, according to the report, which said purchase price inflation was recorded amid currency weakness and higher raw material costs, particularly those related to animal feed.

It said the agriculture and manufacturing sectors posted faster increases in business activity than services and wholesale and retail.

“With new order growth slowing and backlogs of work down, the vast majority of companies kept their staffing levels unchanged in June. Employment rose fractionally for the second month running,” the report said, adding that business confidence remained among the lowest on record in June.

Muyiwa Oni, head of equity research, West Africa at Stanbic IBTC Bank, attributed the drop in the headline PMI to moderation in domestic demand amid the intensification of price pressures.

“Nigeria’s private sector activity as measured by the headline PMI ended Q2:24 on a weak note as the domestic economy continues to be affected by elevated price pressures, high interest rates and lingering currency weakness,” he said.

The PMI reading in the quarter is consistent with a likely slowdown in non-oil sector’s growth to 2.6% year-on-year in Q2 from 2.8% in the previous quarter.

“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.”