Commerce

Private sector activity shrinks in July on uncertainty, inflation – PMI

Thursday, August 4th, 2022 09:00 | By
PHOTO/Courtesy

Kenya’s private sector moved deeper into contraction territory, with Stanbic bank Kenya’s headline Purchasing Managers Index (PMI) dropping to 46.3 in July from 46.8 in June, even as employment rose for the first time. 

Readings below 50 is a sign of deterioration, while those above 50 signal an improvement in business conditions on the previous month.

Stanbic attributed the latest decline, the sharpest in 15 month, to the uncertainty around the upcoming election and the impact of strong inflationary pressures which has dampened demand leading to companies scaling back their purchasing activity. 

Cost of living

Stocks of purchases continued to rise, however, with some firms trying to ensure that inventory levels were sufficient for future order needs Kenyans have been experiencing a surge in the cost of living, attributed to the rising cost of fuel and basic commodities including sifted maize flour, bread and cooking oil due to supply chain disruptions caused by the Russia-Ukraine war. Mid last month, the government subsidised the price of a 2kg packet of maize flour to Sh105 from Sh230 as part of a subsidy measures to reduce the cost of living, even as firms continued to increase their selling prices to protect their profitability in the face of sharply rising input costs. The fastest rise in charges was experienced in the wholesale and retail sectors. 

Though the month on month rate of inflation eased in July to 0.7 per cent from 0.9 per cent in June, 28 per cent of respondents signaled a rise in purchase costs, which they linked to higher fuel prices which subsequently fed through to transportation costs. Food shortages due to drought conditions led to higher food prices, with currency weakness and import taxes adding to purchase costs.  According to the index, stocks of purchases continued to rise, however, with some firms trying to ensure that inventory levels were sufficient for future order needs. Employment was up, ending a two-month sequence of decline, with expanding workforce numbers expected to help firms provide good quality products and services to their customers.

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