South Africa’s private sector activity expanded at the fastest pace in just over one year in June, underpinned by strengthening client demand, rising employment and renewed stockpiling despite woes of inflationary pressures amid a surge in global fuel prices and supply-side challenges.
The Purchasing Managers’ Index, or PMI, rose to 52.5 in June from 50.7 in May, survey results published by S&P Global showed on Tuesday. A reading above 50 indicates expansion in the sector.
Growth in new orders accelerated to a 13-month high in June, linked to a recovery in economic conditions, especially in KwaZulu-Natal following floods earlier this year.
Business activity grew at the fastest pace since May 2021, driven by a robust expansion in the services sector, contrasting with reduced output in construction and wholesale and retail.
As a result of increased orders and activity, South African companies increased employment levels in June, with the rate of job creation reaching its highest point in a year.
On the price front, cost burdens increased at the steepest pace since March 2014, primarily due to higher fuel prices. Selling prices also grew at one of the sharpest seen in the survey’s history.
Supply shortages and a strengthening US dollar were also the reason behind the increase in material costs in May, along with growing staff wages.
For the purpose of filling new orders, firms increased their input purchases to a three-month high in June and decided to stockpile raw materials at higher prices to protect against future inflation.
“As well as hitting input costs, material shortages due to the war in Ukraine and lockdowns in China are also delaying the recovery in supply chains, leaving a number of businesses without the required inputs to run at normal capacity,” S&P Global economist David Owen said.
“Moreover, with the Input Prices Index reaching its highest level since March 2014, the data suggests that the South African economy is facing a period of severe inflation in the second half of the year.”
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