Zambia’s headline Purchasing Managers Index (PMI) for the month of December 2018 deteriorated to 47.8 from 48.1 on account of an uptick in overall input cost inflation. This is below the 50 borderline for expansion and contraction in industrial activity. The copper producers manufacturing pulse has been in negative territory for 5 months in a row following elevated cost curves as a consequence of higher input prices such as fuel and labor.
What Zambia is experiencing is an autopsy of a higher adjusted minimum wage bill and higher pump prices of fuel that have elevated the manufacturing cost curve which is reflecting in rising selling prices. Input cost inflation is at a 21-month high as a result.
According to IHS Markit, the December survey carried out between 17-22 Dec. reveal that at 47.8, headline PMI slid from 48.1 in November signalling a solid monthly deterioration in business conditions in the Zambian private sector.
“While businesses slowed down and were on recess in the second half of December, manufacturing momentum slowed to offset the input cost push effects and as such kept Zambia’s business activity in the woods,” the business telegraph carried in a note.
Output fell at a sharp and accelerated pace in December, with slow business and a lack of money in the economy highlighted again by panelists. The acceleration in the rate of decline in activity was recorded in spite of a slower reduction in new business. Although new orders continued to fall at a solid pace, there were some reports that customer numbers had started to improve. Meanwhile, backlogs of work declined again at the end of 2018, the note carried.
Commenting on December’s survey findings, Victor Chileshe, Head of Global Markets at Stanbic Bank said:
“While we saw input costs rising, companies tried to take advantage of the festive season as seen by the softening in the rate of decline in new business and the continued taking on of extra staff.”
Inflationary pressures continued to build at the end of the year, with overall input costs increasing at the fastest pace since March 2017. The rate of output price inflation also quickened, and was elevated for the third month running.
Increase in the minimum wage in Zambia meant that staff costs rose for the third month running, and at a relatively solid pace. Purchase costs, meanwhile, increased at a sharp and accelerated rate, with inflation quickening to a 23-month high. Higher fuel costs and currency weakness were the principal factors leading to rising purchase prices.