Businesses cut jobs as rising inflation hits purchasing power

Economy

Businesses cut jobs as rising inflation hits purchasing power


Companies shed jobs for the second month in a row in June as runaway inflation weighed on stagnant wages. PICTURES | COURTESY

Businesses cut jobs for the second consecutive month in June as runaway inflation weighed on stagnant wages, hurting demand for goods and services.

Findings from Stanbic Bank Kenya’s Purchasing Managers’ Index (PMI), based on feedback from around 400 business leaders, suggest sales fell at a faster pace last month than a months earlier, paving the way for further layoffs.

The closely watched survey suggested producer prices jumped at ‘unprecedented rates’ in PMI history dating back to January 2014. This was after companies continued to grapple with rising costs businesses largely due to soaring fuel prices, expensive raw materials due to persistent supply shortages, bolstering the United States. dollar and consumer taxes.

“As demand fell, businesses reported modest reductions in employment and purchases,” analysts from Stanbic Bank and U.S. analytics firm S&P Global wrote in the June PMI report.

“Companies noted that rising pricing pressures weighed on customer demand, while lower cash flow and the upcoming election were also noted as contributing factors.”

Inflation – a measure of annual changes in the cost of living – soared to 7.9% in June, the highest level since August 2017. It was also the first time that it also exceeded the target for the government’s upper limit of 7.5% during this interim period.

Soaring commodity prices have thinned household baskets, forcing them to cut back on non-essential spending amid negative real wage growth.

The report suggests that companies in the manufacturing, construction and retail sectors suffered the biggest drop in sales as the rising cost of living weighed on budgets, reducing demand and prompting companies to reduce their production.

“Domestic demand fell at an accelerated pace, with the fastest declines in manufacturing, construction and trade,” Stanbic Bank regional economist Kuria Kamau wrote in the PMI report.

“Dropping domestic demand along with rising input prices, lower cash flow and upcoming elections have forced companies to cut production sharply.”

Companies in the service sector, such as banking, however, saw a “marginal increase in new business”.

The overall reading of the PMI – a monthly indicator of private sector players such as output, new orders and employment – fell for the third month in a row to 46.8 from 48.2 the previous month.

A reading below 50 signals a decline in trade transactions, with higher levels indicating growth.

This means private sector activity fell in four of the first six months of the year under the weight of a sustained decline in consumer demand and business output, with February and March being the exceptions.

Manufacturers cited crude palm oil, wheat, steel and paper as showing the strongest price growth among the raw materials used by domestic factories, largely due to bottlenecks in global supply, exacerbated by Russia’s brutal war on Ukraine.

Job Wanjohi, head of policy and research at the Manufacturers Association of Kenya, said most companies in the sector – a major employment driver – have a negative view of performance in the coming months due the cost of raw materials and the uncertainties associated with the election campaign. period.

“Manufacturers are weary of skyrocketing production costs and other business operating costs, and government payment delays,” Wanjohi told the business daily by email.

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Rosemary C. Kearney