Business recovery hits inflation speed bump

The monthly issued survey known as the Purchasing Managers Index (PMI) by Stanbic Bank Kenya shows rising living costs weighed heavily on consumer spending and new orders.

As a result, the headline PMI reading fell marginally to 50.4 points from a higher 51.1 points in August.

The rate at which business activity expanded was the slowest since April when growth declined from the then partial restoration of COVID-19 related containment measures.

Higher fuel prices were the key factor driving up the rise in inflation and chocking demand.

“The improvement in domestic demand was negatively affected by a rise in output prices. Firms hiked output prices to protect their profit margins following a rise in fuel prices during the month,” noted Stanbic Bank Fixed Income and Currency Strategist Kuria Kamau.

Employment was however spared from the high costs fall out as slower output resulted in greater works backlog prompting firms to instead raise their staffing levels to deal with the bulk of work.

Faced with higher costs, companies were also forced to raise their selling charges, and by the greatest extent since February.

According to data from the Kenya National Bureau of Statistics (KNBS), the rate of inflation soared to 6.9 per cent at the end of September, its highest count since February last year.

Even so, firms were still able to increase their input purchasing alongside a modest lift to inventory levels.

Coupled with uncertainty surrounding the trajectory of the COVID-19 pandemic and accompanying restrictions, greater costs have seen the outlook on future activity remain weak.

About 72 per cent of respondents in the PMI survey expect output to be unchanged over the next 12 months.