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Business activity hits lowest in 3 months

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By Abiodun Okunloye

Subsidy removal, others contribute to the country's rise in consumer prices.

According to the June 2023 Purchasing Managers’ Index (PMI) released by Stanbic IBTC Bank on Monday, business activity in Nigeria fell to its lowest level in three months as a result of the removal of petrol subsidies. The headline PMI fell from 54.0 in May to 53.2 in June, remaining above the 50.0 no-change bar. A number higher than 50.0 indicates better business circumstances, whereas a number lower than 50.0 indicates worsening. Businesses confronted a substantially greater inflationary atmosphere at the end of the 2nd quarter of the year, which can be attributed to subsidy, even though business conditions generally remained on a good trend.

The report found that the rate of inflation in selling prices jumped to its highest level so far this year as businesses passed on price increases to consumers at the quickest rate since August of last year. Despite a significant uptick in action during the most recent survey period, respondents said that the end of the fuel subsidy slowed the rate of production increase. The number of customers and the volume of new orders have both increased over the previous three months, leading to a general increase in production. Contrary to the general trend, wholesale and retail reported a decline in activity.

Business environment sees a significant decline in production.

A survey of 400 organizations across agriculture, manufacturing, services, construction, and retail resulted in the PMI index used for evaluating private sector performance. The index is a composite of five sub-indices, each of which is weighted as follows: 30% for new orders, 25% for output, 20% for employment, 15% for suppliers’ delivery times, and 10% for stocks of items purchased; the index for suppliers’ delivery times is inverted so that it moves in the same direction as the others. The PMI had its greatest increase since the beginning of the year in May.

Furthermore, the index’s also revealed that business optimism dropped to its second-lowest level ever in June, only slightly higher than its record-low level from last November. They said enterprises expected production to rise next year due to investments, corporate development plans, and planned marketing campaigns. More so, Bola Tinubu, in his first inaugural address as president in May, declared to end the country’s fuel subsidy. Fuel prices throughout the nation increased by an average of 174.6 percent in the three hours after the speech, compared to the level of two months before.

Petrol price surged from N191.8 to N526.7 per litre.

With BusinessDay’s estimate of NNPC new/old pricing list, the average price of petrol in Africa’s most populous country has increased from N191.8 per litre to N526.7 per litre a month ago. Indeed, throughout the nation, fuel prices have risen by a median of 176%. Since most ‘intra-state’ transport vehicles run on fuel, this might push transport inflation even higher, according to Muyiwa Oni, head of equity research for Stanbic IBTC Bank in West Africa. Transport now accounts for 7.5% of the inflation basket.

He also mentioned that this might have an effect on other measures of inflation. By the end of the year, they expect inflation to have reached 27.5%. The rate of inflation for both input costs and final product prices grew dramatically as businesses passed on rising expenses to their consumers. This slowed the month-over-month increases in both production and new orders. Notably, business optimism hit a record low, and corporations boosted stocks in anticipation of price hikes.

Possible tightened situations for consumers are forecasted.

Lastly, the headline inflation rate in the nation increased for the fifth consecutive time in the month of May, according to data from the National Bureau of Statistics, from 22.22 percent to 22.41 percent, with more increases expected. In reaction to rising living expenses and usually low incomes, consumers have been trading below the value chain, according to a new analysis by CSL Research. They therefore, forecast additional tightening of consumer pockets and an expected poor demand as a result of the anticipated increase in inflation after this current devaluation, they stated.

Related Link

Stanbic IBTC: Website

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