- Selling prices subsequently rose at a faster rate.
- Business expectations regarding the year ahead improved.
High input costs on depreciating shilling and rising fuel prices led to a record increase in purchase costs for business in May, latest private sector performance index shows.
Selling prices subsequently rose at a faster rate, placing additional pressure on customer demand which fell for the fourth month running.
Even though business activity declined, firms continued to expand their staffing levels and accumulated stocks in case of future cash flow challenges.
The headline figure derived from the survey is the Purchasing Managers’ Index (PMI), was below average, hitting 49.4 points, an improvement from 47.2 recorded in April.
Readings above 50.0 signal an improvement in business, while reading below that show a deterioration.
“The Stanbic Bank Kenya PMI showed the private sector slumping further in May, with the headline index increasing but nevertheless, remaining in contraction," said Mulalo Madula, economist at Standard Bank.
He added that inflationary pressures meant weak demand; new orders declined, as did output in the manufacturing and wholesale and retail sectors.
Input prices were at their highest since the survey began in 2014 as the shilling depreciated further, which increased import costs.
"This caused the greatest increase in output prices in seven months, but it was less than the concomitant increase in input prices."
Still, as in recent months, and despite a further decline in new orders, export orders gained further momentum.
“Employment expanded at the fastest rate since November 2021, however, employment in the wholesale and the retail sub-sector was down."
Inventories managed to increase despite firms slowing purchases of inputs, implying that inventory was driven partly by fewer new orders.
"Overall, firms in Kenya were modestly hopeful about the future, although confidence levels remained low by historical norms,” the PMI report reads in part.
This was the fourth month in a row the headline PMI index hit below average.
"New business at Kenyan firms decreased for the fourth month in a row in May, albeit only modestly and to the least extent in this period," the report reads.
Almost a third of surveyed businesses reported a decline in sales, with comments often linking this to the cost of-living crisis and a resulting lack of purchasing power at customers.
On the flip side, a similar proportion of firms saw an upturn from the previous month, linked in part to a softening of inflationary pressures in April.
The latest data signaled a much quicker rise in business costs during May, however, one that was the sharpest recorded since the series began in 2014.
The uptick was mostly driven by a historic rise in purchase prices, with 42 per cent of respondents seeing an increase since April.
According to anecdotal evidence, the uplift was mainly due to increases in both fuel and import prices, the latter driven by a sharp depreciation of the Kenyan shilling against the US dollar.
Combined with falling demand, the marked rise in input costs continued to weigh on business activity, which decreased.
Sector data showed that the downturn was concentrated on manufacturing and wholesale and retail, with the latter category also facing the most pronounced inflationary pressures.
Higher cost inflation led companies to raise their selling charges to a sharper degree, and make additional cuts to purchasing activity.
Despite this, inventories of inputs continued to grow modestly, as firms looked to keep unused items in case of further price rises and supply shortages.
Stockpiling efforts were helped by a shortening of supplier delivery times for the second month running.
Hiring activity at Kenyan firms picked up during May, leading to a solid rise in employment numbers that was the fastest since November 2021.
Businesses often cited efforts to improve client services. The increase contributed to a slightly faster rise in staff costs.
Business expectations regarding the year ahead improved in review period, after slipping to a survey-record low in April.
However, the uptick in sentiment was only slight, with just 10 per cent of respondents giving a positive forecast for output amid the ongoing inflation concerns.