NIGERIA’s inflation rate which rose to a new 28-year high in June has finally shrunk private sector business activity to the negative territory.
For the first time in eight months, business activity fell amid a nationwide protest against bad governance.
On Thursday, August 1, aggrieved Nigerians trooped to the streets to protest what they have tagged #EndBadGovernance.
The protest, slated for 10 days, gathered momentum across the states. The ICIR is running live coverage and reporting the incident in real time.
In their Purchasing Managers’ Index (PMI) report, released on Thursday, August 1, Stanbic IBTC Bank said the Nigerian private sector moved back into contraction territory in July as steep price pressures hit demand and resulted in renewed reductions in both business activity and new orders.
It indicated that input costs and selling prices continued to rise rapidly as confidence hit a new record low.
In July, business activities recorded a headline PMI of 49.2, down from 50.1 in June and below the 50.0 no-change mark for the first time in eight months.
The ICIR reports that a PMI reading of above 50.0 points signals expansion in business conditions while below 50.0 reflects a contraction.
The index signaled a slight deterioration in business conditions as the second half of the year got underway.
Also, it had worsened the health of the private sector and reflected the first reductions in output and new orders since November last year.
Selling prices continued to increase sharply at the start of the third quarter in 2013 as companies passed higher input costs through to their customers.
According to Stanbic IBTC, three of the four broad sectors covered saw business activity decrease in July, except for the manufacturing sector where production increased.
Nigeria’s headline inflation figure quickened to 34.19 per cent in June and the food inflation to 40.87 per cent, further increasing the purchase costs of goods and services.
The headline inflation peaked in June as the year-on-year effects of President Bola Tinubu’s fuel subsidy removal induced higher fuel prices and significant currency depreciation accompanied by the foreign exchange unification fade.
The purchase price inflation also quickened to a four-month high, often due to currency weakness and higher raw material costs.
Although companies expect their output to rise over the coming year, however, there was a scaled-back of business activity, with reduced demand for inputs and prompt payments which led to a further shortening of suppliers’ delivery times.
Commenting on the deteriorating business activities, the head of equity research West Africa at Stanbic IBTC, Muyiwa Oni, said, “The Stanbic IBTC headline PMI declined for the second consecutive month to 49.2 points in July – its lowest level since November 2023.
“Anecdotal evidence continued to highlight the negative impact of sharp price increases on customer demand, resulting in renewed reductions in both business activity and new orders.”
Business activities in the manufacturing and service sectors ended a seven-month sequence of expansion and reinforced a renewed worsening in the health of the private sector, Oni said.
He noted that overall input prices continued to rise sharply in July with the rate of inflation quickening for the third month running and was the fastest since March this year.
“Although output prices continued to rise rapidly during July, the pace of inflation eased from that seen in June and was the slowest since May 2023. Where selling prices increased, panelists linked this to higher input costs.
“This, in addition to the commencement of the primary harvest season in September, is likely to provide some respite for consumers, thereby likely supporting a slight improvement in domestic economic activities in H2:24 (second quarter 2024),” Oni added.