THERE are growing concerns as the Nigerian Purchasing Managers’ Index (PMI) dropped to 50.1 points in June, showing inflation has weighed down business and economic activities to a seven-month low.
Investopedia described PMI as the monthly indicator of economic activity based on a survey.
The monthly PMI index from Stanbic IBTC is a widely used economic indicator that assesses the health of a country’s manufacturing or services sector.
In June, business activity fell to a seven-month low of 50.1 points, easing from 52.1 in May and indicating a broad stagnation in the Nigerian private sector.
The PMI reading of above 50.0 points signals expansion in business conditions while below 50.0 points a contraction.
Economic analysts believe that the the drop in the PMI may not be unconnected to the hike in interest rates by the Central Bank of Nigeria (CBN) through the MPC meeting which has affected lending to businesses and the overall economy.
The last MPC meeting held in May saw the rate hiked to 26.25 per cent.
“We have been hiking the rate and it has not solved our problems and it is even suffocating lending to businesses. We must find a wholistic solution to the economy while prioritising lending to businesses and the manufacturing sector at the single-digit interest rate,” an economist, Muktar Muhammed said.
The ICIR can report that in December 2023, the PMI was at 52.7 points, it rose to 54.5 points in January 2024, dropped to 51 points in February and March consecutively, and slightly rose to 51.1 points in April.
The report stated, “June data signaled a broad stagnation of the Nigerian private sector as subdued demand and intense price pressures led to slowdowns in growth of output and new orders. In turn, employment rose only fractionally. There were signs of inflationary pressures picking up, with purchase prices, staff costs, and selling charges all increasing more quickly than in May.
“The headline PMI registered only fractionally above the 50.0 no-change mark in June to signal broadly unchanged business conditions at the end of the second quarter. At 50.1, the index was down from 52.1 in May and the lowest in seven months.”
Further analysis of the report shows that new orders and output grew at slower rates due to weakening domestic demand and increasing price pressures.
The rate of input inflation remained elevated in June, ticking higher for the second month running to the strongest since March which was linked to currency weakness and higher raw material costs, particularly those related to animal feed.
As a result, companies increased their selling prices rapidly again in June, with the pace of inflation quickening slightly from that seen in May.
Commenting on the report, the head of equity research at Stanbic IBTC, Muyiwa Oni said, “The PMI reading in the quarter is consistent with a likely slowdown in non-oil sector’s growth to 2.6% y/y (year-on-year) in Q2:24 from 2.8% y/y in Q1:24.
“Nonetheless, headline inflation is likely to peak in June, with moderation expected in H2:24 (second-half 2024) 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.”
In addition to the commencement of the primary harvest season in September, Oni said this was likely to provide some respite for consumers in the second half of the year.
On June 15, The ICIR reported that Nigeria’s headline inflation consistently increased in the last year of President Bola Tinubu-led administration.
According to the latest data from the National Bureau of Statistics (NBS) the country’s inflation rate increased to 33.95 per cent as of May 2024.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.