Nigeria: FX scarcity pushes prices of goods up as rising inflation bites

Nigeria’s producers raised selling prices of their output strongly as foreign currency (FX) scarcity adds to companies’ cost pressures by the end of 2022.

The headline PMI reached 54.6 in December, up from 54.3 in November and signaling a marked monthly improvement in business conditions across the Nigerian private sector.

Throughout the year 2022, headline inflation continued to rise till it reached 21.47% year on year in Nov, driven by elevated energy and food prices, exacerbated by the Russia-Ukraine crisis.

With customer numbers and new orders rising, firms also increased their business activity at a sharper pace at the end of last year, PMI report indicates.

It shows that output rose across each of the agriculture, manufacturing, wholesale & retail and services sectors. Improvements in demand were sustained despite ongoing strong inflationary pressures.

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In particular, purchase costs increased at the fastest pace in four months amid rising prices for fuel and raw materials, exacerbated by currency weakness.

In turn, companies increased their own selling prices at a much faster pace, and one that was only surpassed by that seen in December 2021. Policies to help staff with higher living costs, particularly those related to transportation, as well as efforts to motivate staff led firms to raise salaries solidly again.

PMI report reads that companies also increased employment levels to try to alleviate some pressure on existing staff members, though workforce numbers were up only slightly overall.

Purchasing activity rose sharply again, but the rate of accumulation in inventories softened to a 22-month low amid cost pressures and the use of inputs to support output, it added.

Meanwhile, suppliers’ delivery times shortened to the least extent since July 2022. “While prompt payments and competition among vendors led deliveries to speed up, fuel scarcity reportedly caused delays in some cases”.

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Speaking to the report, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, “The headline PMI rose 54.6 in Dec, up from 54.3 in Nov which continues to reflect an improvement in private sector business conditions”.

Oni stated that the improvement was essentially driven by stronger customer demand which consequently resulted in new orders growth rate reaching an 8-m high in Dec.

As a result of the higher level of demand, firms increased business conditions and output levels across various sectors (agriculture, manufacturing, wholesale & retail and services sectors).

“In near term, inflation will likely remain elevated, significantly above the central Bank’s target range of 6% -9%, which would keep the monetary policy authorities hawkish aiming at containing surging price level”, Oni added.