Business conditions stay strong in June

Business conditions in the private sector continued improving in June, buttressed by a widening customer base that lifted the demand for goods, according to IHS Markit’s Purchasing Manager’s Index.

The index, produced from data collected from purchasing executives at 400 private sector companies, came in at 53.2 in June, down from 53.9 in May. Still, this signals an improvement in business conditions in private sector companies as an index reading of 50 or above indicates an expansion.

The figures show that business conditions in the second quarter of this year were stronger than in the first quarter, with a PMI average of 53.0 compared to 52.1 in the first three months. This, according to the regional economist East Africa at Stanbic Bank, Jibran Qureishi, indicates “that the underlying trend remains solid in private sector activity”.

Surveyed executives pointed to an increase in output driven by stronger demand and promotional activities. New orders also increased, as a result. The survey found that output and new orders rose across all the five sub-sectors it monitors.

To support the production ramp-up, firms hired more workers in the month, with production levels rising across all sectors save for agriculture. They also increased their inventory, save for firms in agriculture which was the only sub-sector where buying levels did not increase.

As in previous months, businesses reported an increase in costs, arising from higher prices paid for fuel, raw materials, and inventory. Staff costs also rose following the increase in workforce numbers. These costs were passed on to customers in the form of higher selling prices which rose across all five categories. Additionally, the survey notes that selling prices increased for the twenty-fifth successive month in June.

Consumer inflation, which measures prices of goods and services bought by households, inched up in June to 2.2% compared to a year earlier, driven by rises in fuel and food prices. The central bank expects it to rise further over the next 12 months, driven by the strengthening dollar, rising global oil prices, and increased taxes.

Read More: Inflation to rise on higher import prices and increased taxes, BoU says

Delivery times were shorter than in previous months, the PMI survey said, keeping with a trend observed since the index’s inception in 2016. It attributes this to infrastructure improvements.