Nigeria's purchase cost inflation hits five-month low as PMI stays above 52

Nigeria's private sector extended its expansion to six straight months in July, even though the headline PMI slipped to 52.5 from 53.4 in June. Purchase cost inflation slowed to its lowest level in five months, offering some relief to businesses.

The Stanbic IBTC Bank Nigeria Purchasing Managers' Index, compiled by S&P Global, remained above the 50.0 threshold that separates expansion from contraction. The latest reading was the weakest in three months but still signalled a solid improvement in business conditions.

Demand and output

The report said firms recorded another marked increase in new business during July, extending the current growth streak to six months. Respondents credited stronger customer demand, competitive pricing and the introduction of new products.

Output growth slowed to its slowest pace since January. Agriculture and manufacturing posted strong growth, while services and wholesale and retail recorded more modest increases.

Employment expanded as firms hired additional workers to meet higher production requirements, but the pace of job creation eased to a three-month low. Businesses also increased purchasing activity to support current production and prepare for future demand, leading to another marked rise in inventories.

Some firms reported logistical challenges that delayed project completion, resulting in another slight increase in outstanding business. Supplier delivery performance improved after lead times lengthened in the previous survey period.

Cost pressures soften

The report noted that inflationary pressures continued to soften in July. Both input costs and output prices rose at slower rates than in June.

"Inflationary pressures softened in July, with both input costs and output prices rising at weaker rates than in June. Purchase cost inflation slowed particularly sharply, easing to the lowest in five months," the report read.

Businesses still faced higher costs for fuel and raw materials, which kept overall purchase prices elevated. Staff costs rose at the weakest pace since April, and firms increased selling prices at the slowest pace since February. Agriculture recorded the strongest increase in selling prices, while services had the weakest rate of price inflation.

Outlook and risks

Business confidence remained positive, though optimism weakened slightly from June's one-year high. Nearly half of surveyed firms expect output to increase over the next 12 months, supported by stronger marketing and planned expansion, including new branches.

Commenting on the report, Stanbic IBTC's Head of Equity Research, West Africa, Muyiwa Oni, said businesses continued to benefit from stronger customer demand in July.

"Nigerian businesses reported improved customer demand in July while better pricing and new product launches also helped them to capture new orders arising from the increase in demand. These factors helped to keep the private sector activity in an expansionary territory, although this moderated when compared to June," he said.

Oni noted that firms stepped up purchases of production inputs to meet current demand and prepare for future workloads. He added that while higher fuel and raw material costs continued to push up input prices, "input costs increased at their slowest pace in five months," while selling price inflation also softened.

The economist said the moderation in cost pressures mirrors the slight easing in Nigeria's headline inflation, which slowed to 15.91 per cent in June from 15.93 per cent in May. He projected annual inflation could ease further to around 15.72 per cent in July, largely due to favourable base effects, though month-on-month inflation is expected to be higher than in June.

Oni retained Stanbic IBTC's 2026 GDP growth forecast at 4.1 per cent, with oil sector growth of 3.45 per cent and non-oil growth of 4.11 per cent. He warned that insecurity, renewed exchange rate pressures, adverse weather, rising fertiliser prices and global economic uncertainty remain key risks to food production, investor sentiment and capital inflows.

What it means

Softer purchase cost inflation could ease pressure on business margins and slow the pace of consumer price increases. But with fuel and raw material costs still elevated, and exchange rate risks unresolved, Nigerian businesses may not feel the relief fully. Slower selling price inflation could, however, offer some support to households battling high living costs.