Input cost inflation slows again in July

Business conditions in Ghana continued to improve as the second half of the year got underway, with a further softening of cost pressures helping to support demand. Overall input prices increased at the joint-softest pace in 38 months while output, new orders and employment rose further.

The S&P Global Ghana Purchasing Managers’ Index™ (PMI) ticked up to 50.5 in July from 50.4 in June. The index therefore signalled a marginal improvement of business conditions in Ghana’s private sector. Operating conditions have now strengthened in each of the past six months.

New orders increased at a solid pace again in July, although the latest expansion was the softest since February. According to respondents, the latest rise in new business reflected competitive pricing and stronger client demand.

The improving demand climate and greater confidence in the economy contributed to a further expansion in business activity. Output was up modestly during the month, but the rate of expansion quickened from that seen in June. Muted price pressures also reportedly helped drive output growth.

The muted nature of cost pressures was exemplified by the trend in overall input prices, which increased only modestly and to the joint-weakest degree in the current 38-month sequence of inflation.

Slower increases were seen with regard to both purchase prices and staff costs, with inflation at 38- and 17-month lows respectively.

Those firms that recorded rises in purchase costs often linked this to higher prices for fuel and tax increases. Meanwhile, staff pay was generally raised in order to help workers deal with a higher cost of living and rising transportation fees.

While output prices increased at a slightly faster pace in July, the rate of inflation was still the second-slowest in 28 months – but some panellists raised charges in response to higher input costs.

Business confidence continued to trend higher in July, rising for the fifth successive month to the strongest since January. Optimism reflected improving economic conditions and the prospect of further improvements in new orders during the months ahead.

Positive sentiment – alongside improving demand and muted price pressures – encouraged companies to expand their inventories in July. Firms were able to build stocks of purchases thanks to a further solid increase of input buying.

Employment also rose, and for the eighth successive month. The rate of job creation was modest, but quickened to the sharpest since April.

Higher capacity helped firms to keep on top of workloads. Outstanding business fell markedly, and to the largest extent in the year-to-date.

Suppliers’ delivery times shortened to the largest degree on record at the start of the third quarter, with the latest improvement in vendor performance slightly more pronounced than the previous record posted in May. Close to 21% of panellists reported shorter lead times against 5% who signalled a deterioration.

Andrew Harker, Economics Director at S&P Global Market Intelligence said: “Ghana’s private sector began the second half of the year in the same way that it ended the first; seeing inflationary pressures moderate and demand conditions improving accordingly.

“With output continuing to rise, the data bode well for ongoing improvements in GDP on a quarterly basis moving into the third quarter.”