Businesses raise selling prices on high costs

Businesses are being forced to raise selling prices as they face high input costs/ input cost inflation. Data from Stanbic Bank Kenya Purchasing Managers Index (PMI) published on Monday shows rising fuel costs and increased raw material demand drove up purchase prices for firms in the month of June. While the overall input cost inflation has not changed, business have raised their selling prices in a bid to sustain profit margins. Nevertheless, Kenya’s private sector has remained on an expansionary trend albeit at a slower pace with June’s headline PMI reading at 51 points from 52.5 points in May. The survey attributes the steady increase in output by firms to improved customer demand and greater cash flows. At the same time, businesses have continued to hire new staff to meet new customer order. The pace of both output expansion and hiring has nevertheless been slower than that seen in May. The impact of greater input and output cost could become more profound at the end of July following the enactment of the 2021 Finance Bill, now an Act, which prescribed new taxes with some having taken effect on July 1. Nevertheless, uncertainty surrounding the evolution of the COVID-19 pandemic including the possibility of new restrictions could be more definitive on the direction of private sector activity. For instance, the outlook on activity over the next 12 months has slacked to the second lowest level in the PMI series.

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