May PMI data signalled an unprecedented rise in input prices across the Kenyan private sector midway through the second quarter, as a depreciation of the shilling and rising fuel prices led to a record increase in purchase costs over the month.
Selling prices subsequently rose at a faster rate, placing additional pressure on customer demand which fell for the fourth month running.
Business activity declined, but firms continued to expand their staffing levels and accumulate stocks in case of future cash flow challenges. The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI).
Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration.
The headline PMI registered below the 50.0 neutral mark for the fourth month running in May.
However, at 49.4, the index was up from 47.2 in April and signalled the slowest deterioration in business conditions in the current run of contraction.
Decline in sales
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.
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 among 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 signalled 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% 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 for the fourth month running.
Sector data showed that the downturn was concentrated on manufacturing and wholesale & 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 the purchasing activity.
Employment numbers
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. Finally, business expectations regarding the year ahead improved in May, after slipping to a survey-record low in April.
However, the uptick in sentiment was only slight, with just 10% of respondents giving a positive forecast for output amid ongoing inflation concerns.
