Stanbic Bank Purchasing Managers’ Index (PMI) said that in May, Kenya’s private sector dropped to a low for the third month running amid the country’s raging cost-of-living crisis.
According to the PMI, the situation has been compounded by uncertainty over the supply chain, inflation, and geopolitical tensions caused by the Ukraine-Russia war.
The PMI posted below the 50.0 mark for the second consecutive month in May, falling to 48.2 from 49.5 in April. The 50.0 mark separates growth in activity from contractions.
“The reduction in activity was overwhelmingly due to inflationary pressures, which impacted both operating costs and customer demand,” S&P Global said in the text accompanying the survey.
In the survey which was conducted between May 12-27, business confidence revealed that only eight percent of the 400 managers of private sector companies forecasted an expansion in activity over the coming year.
“Economic activity in Kenya contracted for the second consecutive month in May due to inflationary pressures that resulted in a drop in customer demand and a reduction in firms’ output,” Kuria Kamau, Fixed Income and Currency Strategist at Stanbic Bank, said.
Consumer inflation rose to 7.10 percent year-on-year in May from 6.47 percent a month earlier, data from the Kenya Bureau of Statistics showed.
As a result, the Central Bank of Kenya hiked the policy rate by 50bps to 7.50 percent. The move was informed by rising inflation pressures and consequent expectations on the back of more pronounced shocks to food and fuel.
Elevated food prices have been a result of increased input costs as well as climate change disruptions that have weakened production.
“On the balance of risks, headline inflation, which currently stands at 7.10 percent as at May-2022, is expected to surpass the 7.50 percent statutory upper limit this June and is likely to hold above this level through the third quarter,” NCBA Market Research Team says in its Weekly Fixed Income Report – 06th June 2022.
“This should attract further monetary policy tightening to which we see scope for an additional 75bps by end 2022.”
