Price pressures intensified in the Nigerian private sector during February and were unprecedented in over a decade of data collection. Both input costs and output prices increased at the sharpest rates on record, with rising prices impacting demand.
As a result, rates of expansion in output and new orders slowed sharply over the month, while employment decreased for the first time in ten months. Meanwhile, business confidence dropped to the lowest on record. The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI®). Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration.
The headline PMI dropped markedly in February to 51.0 from 54.5 in January, remaining above the 50.0 no-change mark for the third month running but only just. The improvement in business conditions was the weakest since the recovery in the private sector began last December.
Input costs surged higher in February, often as a result of exchange rate weakness, which drove up material costs, but also higher fuel prices. The latest rise in overall input costs was by far the sharpest since the survey began in January 2014, with around 78% of respondents signaling an increase over the month.
Similarly, output price inflation also hit a fresh record high in February as firms passed through rising input costs to their customers. Steep price pressures acted to limit new orders in the private sector. Although new business increased for the third successive month amid some positive signs of underlying demand, the rate of expansion slowed sharply and was the weakest in this sequence.
This was also the case with business activity, which increased only slightly. Rising activity in the agriculture and services sectors contrasted with falls in manufacturing and wholesale & retail.
Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank commented: “Stanbic IBTC Bank headline PMI slowed to its weakest level since Dec 23, moderating remarkably to 51.0 in Feb from 54.5 in Jan. Employment level dropped below the 50.0 no-change mark for the first time in 10 months while the output and new order’s expansion both weakened significantly in the month.”
“These weaknesses were in line with the sharp local currency depreciation, increase in fuel prices, and rapidly rising food costs in February, thereby driving overall cost pressures in the month. These lingering pressures may push domestic demand low, limiting growth potentials in Q1:24.”
Signs of weakness in the private sector led companies to lower their staffing levels for the first time in ten months, albeit marginally. Purchasing activity was also scaled back following a marked expansion in the previous survey period. Firms were able to keep on top of workloads, however, and reduced outstanding business for the first time in three months.
A desire to be able to respond to new orders in a timely manner meant that companies continued to increase their inventories. Meanwhile, suppliers’ delivery times shortened again.
Unprecedented inflationary pressures amid currency weakness and signs of demand softening meant that business confidence dropped to the lowest on record in February. Firms remained optimistic regarding the year-ahead outlook for activity, however, often reflecting business expansion plans and hopes for an improvement in economic conditions.