Private firms cut wages in cost containment strategy

Private firms trimmed wages in November in view of managing costs to sustain growth in an inflationary environment.

This is according to new data from the Stanbic Bank Purchasing Managers Index (PMI) whose score improved to 50.9 points in November from 50.2 points in October.

The lower staff wages by firms involved in the survey are attributable to steep price pressures even as input costs and output charges eased in the period.

“November data signalled another steep increase in input costs in the Kenyan private sector, amid reports of rising import costs due to a weaker exchange rate against the US dollar, as well as higher taxation and transport costs,” noted the PMI Survey.

Business activity increased across November after a slight decline in October supported mainly by improving new order inflows and favourable weather conditions.

Despite checking wage increases, firms raised staffing levels in line with higher orders which further served to reduce backlogs.

The survey observes the recent benchmark interest rate hike has not negatively affected demand in the economy as firms give a broad positive assessment of their 12-months outlook.

Businesses listed plans to open new branches, launch new products and increase marketing budgets even as the degree of optimism falls from October’s 15-month high.

“Rising input and output prices alongside monetary policy tightening has not caused a negative demand shock in nominal terms. The second rainy season appears to be going better than previously forecast,” noted Standard Bank Economist Mulalo Madula.

“A positive assessment of the 12-month outlook suggests that businesses expect improvement despite the expected challenging global economic environment. This has led businesses to increase purchasing activity almost as strongly as in October and build up inventories.”