Kenya’s Private Sector Activity Declines in March on High Inflation

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Nairobi — Kenya’s private sector endured high inflationary pressures in March as prices of goods increased as a result of the war in Ukraine leading to a dip in business confidence, a new survey shows.

The Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) dropped from 52.9 in February to 50.5 in March, signalling a slower and only marginal improvement in the health of the Kenyan private sector economy.

“Economic activity continued to expand in March but at a slower pace than in February. The slowdown was driven by rising inflation which resulted in subdued demand growth by consumers and a contraction in output by producers,” said Kuria Kamau, Fixed Income and Currency Strategist, Stanbic bank.

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According to the survey, the pressure of higher prices on customers was substantial, with many choosing to reduce their spending, leading to a much slower increase in sales across the private sector.

Subsequently, business output contracted for the second time in three months, while confidence in future activity fell to the lowest level in the survey’s history.

“Input prices rose at the fastest rate in 8 years driven by higher taxes and the Russia-Ukraine conflict which has increased fuel, food, and fertilizer raw material costs. While most businesses remain positive about output growing over the next year, the concerns around rising inflation pushed the future output index to its lowest level since the start of the survey,” said Kamau.

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Also contributing to the fall in the headline index was a much softer rise in new business volumes, as panellists saw a drop-off in client demand as inflationary pressures soared.

Notably, price gauges for both business costs and charges reached their highest levels since early-2014, as purchase prices were reportedly exacerbated by the war in Ukraine and government taxes.

According to anecdotal evidence, worries over the impact of the war on global supply meant that inputs such as fuel, food products and fertiliser rose sharply in price.

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Firms often had little choice but to raise their selling charges accordingly, with the rate of increase quickening to a near-record pace.

On a positive note, firms registered a modest rise in employment numbers during March, amid efforts to boost capacity and complete new sales.

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