Staff costs in the manufacturing sector rose at the fastest pace in 11 months in January 2023 as companies increased pay in line with higher living costs, according to the latest Purchasing Managers’ Index (PMI) by Stanbic IBTC Bank.
PMI are economic indicators derived from monthly surveys of private-sector companies in the manufacturing and service sector.
According to the report, manufacturers’ output price inflation remained elevated as higher cost burdens were passed on to customers. “Purchase costs increased on the back of rising fuel and raw material costs, exacerbated by currency weakness.”
Since the Russia-Ukraine war, prices of inputs have doubled amid a surge in diesel prices and foreign exchange volatility in Africa’s biggest economy.
According to the National Bureau of Statistics (NBS), the average retail price of diesel rose by 182.6 percent in December 2022 to N817.9 per litre from N289.4 per litre in the same period of the previous year.
In November, the Manufacturers Association of Nigeria revealed that manufacturers spent N67.7 billion in the first half of 2022 on diesel, a 51 percent increase from N45.0 billion in the same period of 2021.
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At the official market, the naira-dollar exchange closed at N461/$1 last week from N414/$1 in December 2021. At the parallel market, it rose to as high as N752/$1 from N580/$1 in December 2021.
The Stanbic IBTC report also revealed that its headline PMI dipped to 53.5 in January from 54.6 in December. “Although still signalling a solid monthly strengthening of the private sector and the 31st in consecutive months, the rate of improvement was the softest since August 2022.”
Muyiwa Oni, head of equity research, West Africa at Stanbic IBTC Bank said “private sector activities have continued to expand after recovery from the pandemic-induced recession, nevertheless, the pace of growth recorded last month was the slowest since August 2022.”
“This was attributed to moderating customer numbers, despite increased demand. Business expansion also softened during the month, which was attributed to the power supply and machinery challenges.
“Notably, the inflation rate for both input and output cost moderated in Jan alluding to our expectation for declining inflation in 2023,” he said.
Oni added that they expect inflation to gradually moderate in 2023 on the back of a favourable base. Nevertheless, it is likely to still remain above the Central Bank’s target range six to nine percent.
On a positive note, the report said that firms raised employment at the fastest pace since June 2018 as part of efforts to speed up work processes.
“On the price front, rates of inflation of input costs and output prices softened in January, but remained elevated,” the report added.