Higher fuel prices in May drive up private sector input costs

June 7, 2022 in Business by Editor

Construction and industry signaled increased staffing levels, while falls were registered in agriculture, services and wholesale & retail. However companies remained optimistic in the 12-month outlook for activity, with positive sentiment based on predictions of new order growth and hopes for an alleviation of price pressures.

Higher fuel costs during May affected private sector activity as the monthly Stanbic Headline Purchasing Managers Index (PMI) fell to 51.5 compared to 53.9 recorded in April however output and new orders continued to rise amidst mounting pressure to increase prices.

Readings above 50.0 mean improvement in business conditions on the previous month while readings that are below 50.0 show deterioration. The Stanbic PMI covers the agriculture, industry, construction, wholesale & retail and service sectors. It is a composite index, calculated as a weighted average of five individual sub-components: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).

Ronald Muyanja, the Head of Trading at Stanbic Bank Uganda said, “Business conditions continued to improve in the Ugandan private sector during May amid ongoing increases in output and new orders. That said, there were some reports that price pressures had acted to limit demand. Higher costs were often the result of rising fuel prices. The latest strengthening of the health of the private sector was weaker than the six-year survey
average.”

The Stanbic PMI is an analysis of data collected from the monthly survey of business conditions in the Ugandan private sector involving about 400 respondents. The survey, sponsored by Stanbic Bank and produced by S&P Global, has been conducted since June 2016. The Headline PMI provides an early indication of operating conditions in Uganda.

Ongoing increases in output and new orders were registered in May, with both rising for the tenth month running. Anecdotal evidence suggested that while on balance customer demand continued to improve, there were some instances of price rises deterring clients. The industry, services and wholesale & retail sectors saw new business increase, but decreases were recorded in agriculture and construction.

Selling prices rose again during May as companies responded to higher input costs. Sector data showed that increases in charges were widespread across the private sector. Ferishka Bharuth, Economist – Africa Regions at Stanbic Bank said, “Selling prices rose for 9th consecutive month. Price pressures were widespread across the private sector with overall input costs continuing to rise in May, with higher fuel prices central to overall price increases. However, companies remained optimistic in the 12-month outlook, with the positive sentiment based on the expectation that new orders will continue to grow, and price pressures should relent.”

Output increased in the industry, services and wholesale & retail sectors, but decreased in agriculture and construction. Overall input costs continued to rise in May, with higher fuel prices central to inflation. Increasing costs for a range of raw materials were also cited, while wages were up for the fifth month running. Some firms increased staff pay in response to higher living costs. With input prices continuing to rise, companies increased their own charges again in May. Price pressures were broad-based across the private sector.

According to the May findings, firms raised their staffing levels and purchasing activity as new orders expanded. The increase in input buying, alongside improved supplier performance, fed through to an accumulation of stocks of purchases midway through the second quarter. This means firms extended the current sequence of job creation to five months. Those companies that raised their workforce numbers linked this to higher new orders.

A combination of rising purchasing activity and faster supplier deliveries enabled companies to expand their stocks of inputs during May. As a result, inventories increased for the eighth month running. In contrast to the overall trend, industry posted a reduction in stocks of purchases.