THE JUNE PMI FOR STANBIC IBTC DECLINES, INDICATING HIGHER INFLATION EXPECTATIONS.

Tunji Wusu –

A monthly improvement in the health of the private sector was indicated by the decrease in the Stanbic IBTC Bank Purchasing Managers Index (PMI) survey of business activity in Nigeria to a value of 53.2 in June, which was just a little lower than the 54.0 figure from May.

Particularly, the loss of the gasoline subsidy created a more acute inflationary environment for businesses, which prompted them to build inventory in expectation of more price hikes.

Purchase price inflation has climbed at the quickest rate since last August, and selling price inflation has accelerated significantly as businesses passed on higher expenses to customers.

While backlogs of work grew as businesses struggled to get inputs while growing new business, employment expanded little for the second month in a row.

The elimination of the gasoline subsidy had an effect on output growth, and company confidence fell slightly as rates of increase in output and new orders slowed but remained hopeful.

The withdrawal of the gasoline subsidy and the naira’s depreciation, according to a warning from the Bank of America last week Monday, might cause Nigeria’s inflation to exceed 30 percent.

They said that in order to reduce inflation, the Monetary Policy Committee of the Central Bank may need to hike interest rates by at least 700 basis points before the year’s end.

While the rate would be useful to reassure investors concerned about the inflation-adjusted returns, analysts at Proshare believe that another rate would be a double blow for manufacturers facing rising operating and capital costs.