NAIROBI, Kenya, Nov 3 – Kenyan businesses recorded a slight decline in activity in October as inflationary pressures remained elevated weighing down output.
The latest PMI survey data shows that the ongoing concerns about the rising cost of living led to a softer expansion in new orders as firms highlighted a record increase in purchasing costs.
The slowdown in activity saw the headline figure derived from the Stanbic Purchasing Managers’ Index™ (PMI) survey drop to 50.2 from 51.7 in September.
“October’s PMI continued to signal an improvement in business conditions, albeit with a loss of momentum compared to September. New orders, employment and purchasing growth recorded weaker expansions,” said Mulalo Madula, Economist at Standard Bank.
The survey noted that rising living costs dampened client spending in many cases, contributing to lower sales volumes in the construction, services and wholesale & retail sectors.
Kenya’s inflation hit a five-year high of 9.6 per cent in October attributed to high cost of food, fuel and housing meaning Kenyans had to cut their spending on non-essential items.
The survey added that the inflationary pressures negatively impacted business activity in October, as some respondents noted reduced capacity due to high running costs.
“If price pressures persist and firms continue to pass on a higher share of rising input cost burdens to output charges, demand may weaken in the short to medium term, slowing the overall rate of improvement in Kenya’s business environment,” said Madula.
Notably, the latest survey data signalled a record uptick in purchase costs during October, driven by rising fuel costs, a weaker currency and material shortages. Around 41 per cent of companies saw their purchase costs rise.
Fears that prices will continue to rise contributed to a sharp increase in stockpiles of inputs in October, helped by a further rise in purchasing.
Meanwhile, lead times shortened due to strong competition among suppliers.
With output falling, backlogs of work rose for the fifth month running and at a faster rate.
Further, staff costs rose at the slowest pace since March. The record increase in purchase costs led companies to raise their output charges sharply in October.
Finally, output expectations were up to their strongest for 15 months in October. Despite growth headwinds, companies were more confident of rising client numbers and business expansion plans coming to fruition.
