Stanbic Bank Kenya PMI - Output growth dissipates as price pressures hit consumer spending

Key findings

• Output rises only marginally in September
• Higher living costs weaken sales growth
• Fastest rise in employment for eight months

Kenyan private sector activity grew at only a marginal pace in September, according to the latest PMI survey, as rising living costs weighed on consumer spending and new orders. The hike in energy prices particularly hit demand, as well as driving a sharper rate of both input cost and output charge inflation. More positively, capacity pressures led firms to increase their staffing levels at the strongest rate since January.

The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

Falling from 51.1 in August to 50.4 in September, the headline index signalled an overall improvement in operating conditions. That said, the pace of improvement was marginal and the weakest seen in the current fivemonth sequence of growth.

Output and new orders rose in September, driven by a continued recovery in demand from the strict lockdown earlier in the year. Exports were also a key source of growth, as foreign orders increased at the fastest rate since October 2020.

That said, there were numerous reports that a rise in living costs had weakened consumer spending, leading to a softer - and only marginal - rate of total sales growth. Subsequently, the rate at which business activity expanded was the slowest seen since the return to growth following April’s lockdown-induced decline.

Higher fuel prices was a key factor leading to the uptick in living costs. As well as impacting demand, businesses found that the price hike added to purchasing prices, which rose sharply. Faced with higher cost burdens, firms raised their selling charges to the greatest extent since February.

Backlogs of work meanwhile rose for the fourth month running, leading a number of companies to add to their staffing levels. Notably, the rate of employment growth was the quickest seen for eight months.

Input purchasing also expanded, and to the strongest degree since June, while firms saw delivery times shorten to the greatest extent in almost a year. These improvements supported another modest increase in inventory levels.

Lastly, the outlook for future activity remained relatively weak in September, despite improving slightly from August. Around 72% of respondents expect output to be unchanged over the coming year, amid uncertainty surrounding the pandemic and inflationary pressures. Positive forecasts were meanwhile driven by hopes of increased marketing and capital investment.

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