Inflationary pressures cause business sentiment to dip during June

July 5, 2022 in Business, Companies by Editor

As is often the case, higher fuel prices had a knock-on effect on other production inputs triggering widespread price hikes.

The Stanbic Headline Purchasing Managers’ Index (PMI) slipped down to 50.9 during June, from 51.5 in May amidst the continued rise of prices for production inputs and other overhead costs, notably fuel products.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below that figure show a deterioration. David Kamugisha, the Head of Trading, Global Markets at Stanbic Bank said, “The end of the second quarter saw a further improvement in business conditions in the Ugandan private sector with output, new orders and purchasing all continuing to rise. However, employment decreased, while on going inflationary pressures featured prominently in the latest survey.”

The PMI is a composite index, calculated as a weighted average of five individual sub-components including; New Orders (30 pc), Output (25 pc), Employment (20 pc), Suppliers’ Delivery Times (15 pc) and Stocks of Purchases (10 pc).  The PMI, which is sponsored by Stanbic Bank and produced by S&P Global, has been conducted since June 2016 and covers the agriculture, industry, construction, wholesale and  retail and service sectors.

Respondents to the June survey said price pressures had caused a reduction in new business with construction suffering the most decline. Ferishka Bharuth, Economist Stanbic Bank – Africa Regions said, “Firms responded to higher new orders by raising purchasing activity, with inventories also up. On the other hand, employment decreased, thereby ending a five-month sequence of job creation.”

Meanwhile, suppliers continued to speed up deliveries, with lead times shortening for the eleventh month running in June. The survey also noted a persistent increase in input costs with higher prices for electricity, fuel, and water all widely mentioned by respondents.

Purchase costs were driven higher by rises in price for a range of items such as cement, food products and stationery, while firms also increased staff pay in response to higher living costs—with input prices up, companies also increased their selling prices. Charges were up across all five broad sectors covered.

Looking ahead, just over 70 pc of the respondents expressed optimism about the second half of the year on the basis of expected increases in customer numbers and improving demand.