Inflation Pressures Facing Private Sector Ease in April -PMI

Inflationary pressures softened in the Nigerian private sector during April, following record increases in purchase costs and selling prices in March, according to Stanbic IBTC purchasing manager index (PMI)

In the latest update released by Standard & Poor Global today, it is noted that Nigeria’s inflation rate remained elevated with limited output growth and new orders, causing some firms to reduce employment.

Details showed that the headline PMI ticked up to 51.1 in April from 51.0 in March, pointing to a fifth consecutive monthly improvement in business conditions in the Nigerian private sector, but one that was only slight overall.

The report stated that conditions for firms continued to be heavily influenced by movements in the naira and the subsequent impact on prices.

An improvement in the strength of the currency over the past month led to sharp slowdowns in rates of increase in purchase prices and output charges, although inflationary pressures remained substantial nonetheless.

The latest rise in selling prices was the softest in just under a year, according to PMI, adding that slower price increases were seen across all four broad sectors covered by the survey.

“Although price increases were less pronounced than in March, the extent of inflationary pressures continued to limit growth rates in output and new orders in April, both of which were unchanged from the previous month”.

Agriculture and manufacturing saw output increase sharply, while wholesale & retail activity also rose. On the other hand, services activity decreased. As well as seeing purchase cost inflation softened in April, firms also saw a slower rise in employee expenses.

Staff costs increased modestly and at the weakest pace in 13 months. Nevertheless, cost pressures led some companies to reduce staffing levels. This was broadly cancelled out by hiring elsewhere, however, meaning that overall employment was little changed in April following falls in February and March.

The sustained absence of job creation at a time of rising new orders meant that backlogs of work accumulated for the second month running, according to the report.

It is noted that delays were also caused by issues securing materials due to higher prices and difficulties receiving payment for orders from customers.

In addition, rising new orders led to modest expansions in purchasing activity and inventory holdings at the start of the second quarter of the year.

Meanwhile, suppliers’ delivery times continued to shorten, thanks to prompt payments and competition among vendors.

Although investment in business expansions, higher new orders and advertising activity are all expected to lead to output growth over the coming year, sentiment ticked down from March and remained among the lowest in the series’ history.

Nevertheless, just over half of respondents predicted an increase in activity over the next 12 months

In a comment, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, “Nigeria’s private sector activity started the second quarter on strong, albeit modest footing as the slower rate of price increases supported a rise in the growth of new orders.

“Notably, the USD/NGN pair appreciated by 22.5% m/m to an average 1,236.05 in April. This provided support for a slowdown in the pace of price increases more so that the conditions for firms continued to be heavily influenced by movements in the naira and the subsequent impact on prices.

Still, inflationary pressures remain at record highs, suggesting limited headroom for private sector activity to improve substantially. Accordingly, the headline PMI ticked up to 51.1 in April from 51.0 in March, pointing to a fifth consecutive monthly improvement in business conditions in the Nigerian private sector, but one that was only slight overall.”

“Based on our current estimates, headline inflation is already nearing its peak, which is likely to occur in May. This, in conjunction with tight monetary conditions could constrain household consumption and business investments. On tight monetary conditions, the odds are in favour of further rate hikes by the Monetary Policy Committee (MPC) of the CBN at their May policy meeting.

Consequently, we expect to see a moderation in the growth of interest-rate-sensitive sectors like manufacturing, construction, real estate, and trade. Accordingly, we maintain our expectation that the non-oil sector’s growth will moderate in 2024 relative to 2023. Overall, we estimate that the Nigerian economy will grow by 2.9% in 2024.”