PMI Report: Productivity Grew Slightly in March Despite Strong Inflationary Pressure

Dike Onwuamaeze

The rate of expansion in business activity quickened slightly in March but remained relatively modest as the rate of purchase price inflation hit a fresh record high for the second consecutive month, largely due to the impact of currency weakness.

This was revealed by the Purchasing Manager Index (PMI) of the Stanbic IBTC Bank Nigeria, which showed that the productivity of the private sector recorded 51.0 percentage points during the month under review, adding that “the rate of output price inflation was also the steepest since the series began in January 2014 as close to 69 per cent of respondents increased their charges over the month.”

Some of the sectors that witnessed improved activities during the month under review were agriculture, manufacturing, wholesale and retail and services categories.

According to the report: “The headline PMI was unchanged at 51.0 in March, the joint-lowest in four months. The latest reading pointed to a slight improvement in business conditions during the month, and one that was softer than the series trend.”

The report added that, “Nigerian companies registered a fourth consecutive monthly increase in output during March, thanks to the impact of marketing efforts and higher customer numbers.

“The pace of expansion quickened from that seen in February, but was still relatively modest. Some firms indicated that sharp price rises had a negative impact on client demand.”

Commenting on the PMI report, the Stanbic IBTC Bank’s Head of Equity Research, West Africa, Mr.  Muyiwa Oni, noted that the impact of currency weakness on the Nigerian private sector was evident again in March.

Oni said that “purchase costs rose at the sharpest rate on record, meaning companies increased their own selling prices at an unprecedented pace.

“The rate of expansion in business activity ticked higher, but steep price rises acted to limit demand and the pace of new order growth eased to a four-month low. Meanwhile, employment decreased for the second month running.”

According to him, the headline figure derived from the survey is the PMI above 50.0 signaled an improvement in business conditions on the previous month, while readings below 50.0 showed deterioration.

He said: “The headline PMI was unchanged at 51.0 in March, the joint-lowest in four months. The latest reading pointed to a slight improvement in business conditions during the month, and one that was softer than the series trend.

“The rate of expansion in business activity quickened slightly from February, but remained relatively modest. Increases in activity were seen in each of the agriculture, manufacturing, wholesale, retail and services categories.”

Oni added, “price pressures remained elevated in March. In fact, the rate of purchase price inflation hit a fresh record high for the second consecutive month, largely due to the impact of currency weakness. There were also some reports of higher transportation costs.

“Employee pay was also increased in response to cost-of-living pressures, resulting in the sharpest rise in staff costs since last November.”

Oni also pointed out that with prices rising sharply, firms faced challenges securing new orders. Although new business increased for the fourth month running as some companies noted greater client interest, the rate of expansion was the softest in the current sequence of growth.

According to him, “purchasing activity returned to growth, however, following a reduction in the previous survey period. Where input buying increased, this was linked to efforts to meet new order requirements in a timely manner. This was also a factor behind sustained growth of inventories.

“However, backlogs of work ticked higher amid the high cost of materials and delays in payments by customers. Suppliers’ delivery times, meanwhile, continued to shorten, in part thanks to muted demand for inputs and prompt payments.

“Confidence in the year-ahead outlook for business activity strengthened from the previous month’s record low, but remained relatively weak at the end of the first quarter of the year.”