The Purchasing Managers' Index (PMI) report of the Stanbic IBTC Bank Plc has stated that the rate of inflation eased to a one-year low in May 2024.
The report also stated that the headline PMI posted 52.1 in May, up from 51.1 in April and the highest since January 2024.
The latest reading also signaled a modest improvement in business conditions in the Nigerian private sector, but one that was still less pronounced than the historical trend.
In addition, new orders increased solidly in May, extending the current sequence of growth to six months while business activity was also up, and to the largest extent since January as growth was recorded across all four monitored sectors, with the sharpest rise in manufacturing.
The PMI report said: "Although purchase prices continued to increase sharply during May, the pace of inflation eased for the second month running from March's survey record to the lowest for a year. Weakness of the naira against the United States' dollar continued to be the main factor raising the costs of materials, but higher fuel prices were also mentioned.
"Nigerian companies increased their selling prices in May, reflecting the pass through of sharply rising input costs to customers. Although remaining rapid, the pace of charge inflation eased to the slowest since May 2023. Around 39 per cent of respondents increased their selling prices, while 2.0 per cent reduced charges. The improvement in customer demand seen in May encouraged companies to expand their purchasing activity."
However, the report stated that business confidence waned and was the lowest since the survey nadir posted in February despite stronger expansions in output and new orders in May as, "more than 43 per cent of respondents remained optimistic."
Commenting on the report, the Head of Equity Research West Africa at Stanbic IBTC Bank, Mr. Muyiwa Oni, said; "the Stanbic IBTC headline PMI increased to 52.1 points in May from 51.1 in April - its highest level since reaching 54.5 points in January. This implies that Nigeria's private sector activity maintained a better footing in May even as the rate of expansion remained slower than the series average as high prices continued to limit demand.
"Nonetheless, the purchase costs and selling prices increased at their slowest rates in a year, thereby supporting a sharper increase in both output and new orders relative to April. The Nigerian economy grew moderately by 2.98 per cent y/y in Q1:24 from 3.46 per cent y/y in Q4:23.
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"From a structural perspective, the services sector remains the growth engine of this economy, contributing 83.2 per cent to the real GDP growth rate, with industries and agriculture contributing 15.5 per cent and 1.3 per cent respectively to the real GDP growth."
He added, "As expected, the interest rate sensitive sectors experienced a slowdown in growth safe for the manufacturing sector whose growth improved modestly to 1.49 per cent y/y, from 1.38 per cent y/y in Q4:23 - albeit still lagging the three-year average growth (2.40 per cent y/y).
"The April and May headline PMIs point to a slight improvement in private sector activity in Q2:24, although still underwhelming compared to Q2:23. We expect domestic demand to remain weak relative to historical average; exacerbated by inflationary pressures which may likely peak in May.
"Besides, interest rates at unprecedented highs will continue to have a negative pass through impact on the non-oil sector. However, because of an expected favourable base-effect induced oil sector's growth, the overall economy is on course to grow by 3.51 per cent y/y in real terms in Q2:24."
