The Purchasing Managers’ Index (PMI) report has shown that inflationary pressures softened in the Nigerian private sector during April, following record increases in purchase costs and selling prices in March.
Accoriding to the report, rates of inflation remained elevated, however, and limited growth of output and new orders as well as leading some firms to reduce employment.
It said the headline figure derived from the survey is the Purchasing Managers’ Index (PMI). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
“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,” it said.
Accoridng to the report, 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. Slower price increases were seen across all four broad sectors covered by the survey,” it said.
The report explained that although price increases were less pronounced than in March, the extent of inflationary pressures continued to limit rates of growth in output and new orders in April, both of which were unchanged from the previous month.
“Agriculture and manufacturing both saw output increase sharply, while wholesale & retail activity also rose. On the other hand, services activity decreased. As well as seeing purchase cost inflation soften 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,” it said.
It added that the sustained absence of job creation at a time of rising new orders meant that backlogs of work accumulated for the second month running.
“Delays were also caused by issues securing materials due to higher prices and difficulties receiving payment for orders from customers. 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,” it said.
Head of Equity Research West Africa at Stanbic IBTC Bank, Muyiwa Oni, commented: “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 per cent 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 moderation in the growth of interest-rate sensitive sectors like the 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 per cent in 2024,” he said.
