The Stanbic IBTC Bank Purchasing Managers Index (PMI) survey of business activity in Nigeria declined to a reading of 53.2 in June, slightly lower than May’s 54.0, indicating a monthly improvement in the private sector’s health.
Specifically, companies faced a more pronounced inflationary environment due to the removal of the petrol subsidy, leading them to expand inventories in anticipation of further price increases.
Since last August, purchase prices have increased at the fastest pace and selling price inflation has accelerated sharply as firms passed on higher costs to customers.
Meanwhile, employment modestly increased for the second consecutive month but backlogs of work accumulated as firms faced difficulties securing inputs amidst expanding new business.
The removal of the petrol subsidy impacted output growth, while business confidence experienced a marginal decline as rates of expansion in output and new orders softened but remained optimistic.
The Bank of America, last week Monday, warned that Nigeria’s inflation could reach 30 percent, chalking the rise up to the petrol subsidy removal and devaluation of the naira.
They suggested that the Central Bank’s Monetary Policy Committee may need to raise interest rates by at least 700 basis points before the year-end to curb inflation.
Analysts at Proshare believe that while the rate would be helpful to encourage investors concerned about the inflation-adjusted returns, another rate would constitute a double whammy for manufacturers facing rising costs of operations and funding.
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