Cost pressures flatten firms’ post-pandemic recovery curve

Input costs pressures have slammed the brakes on the recovery of Kenya’s private sector in the last month after an expansionary trend marked after the lift of tighter COVID-19 restrictions.

This is according to data from the Stanbic Bank Kenya Purchasing Managers Index (PMI) whose headline leading was flat at 51.4 points in December from 51.3 points in November.

The companies in the private sector have reported a rise in both input and purchase prices as they face up to new supply chain disruptions occasioned by the COVID-19 pandemic.

Input prices jumped during the month after registering a slight dip in November while purchase price remained on an expansionary trend with firm’s facing the highest rate of expansion in nine months.

Nevertheless, output remained on the growth curve for the sixth consecutive month despite the rate of growth being the softest in the six month expansion series.

The local firms were unable to fully pass on the cost pressures to their customers as reduced spending power by customers forced the entities hand in issuing discounts to support demand.

As such, output prices fell for the second straight month.

“The modest month-on-month improvement in the Stanbic PMI indicates that the pace of the post pandemic recovery is slowing down. Rising input costs, partly caused by disruptions in supply chains as well as some input shortages, have also resulted in a slowdown in the growth in output,” stated Stanbic Bank Kenya Fixed Income and Currency Strategist Kuria Kamau.

“This slowdown was inevitable following the significant improvements in economic activity witnessed in October after the relaxation of public health restrictions.”

Despite the cost pressures, firms continued to hire more workers for a third month running as they came across greater orders requiring a higher staff base.

The COVID-19 pandemic is however expected to keep firms on their toes by presenting volatility in the near term as countries re-impose tighter restriction measures affecting the rate of both local and export orders.

Kenyan firms have for instance set a new low on expectations across the next 12 months breaking the previous most pessimistic record set in November.

“A resurgence in COVID-19 cases as well as the re-introduction of lockdowns in some international markets has lowered expectations for the post pandemic recovery in 2021,” added Mr Kamau.