Market research and intelligence company S&P Global South Africa’s latest Purchasing Managers’ Index (PMI) showed that inflationary pressures were at the forefront of the survey data in March.

In the wake of increased global uncertainty owing to the war in Ukraine, prices for a number of commodities surged, leading to the quickest increase in business costs for nearly six years. South African companies largely passed these costs onto their customers, resulting in the second-sharpest uplift in selling prices since the survey began in 2011.

Rising cost pressures led to a decrease in business activity, while firms saw clients rein in demand amid concerns over living costs, S&P said in an April 5 release.

“A rise in the headline PMI masked a worsening of price and supply risks in the South African economy in March. Pricing data pointed to the second-fastest rise in output charges in the survey's near 11-year history, as firms saw a substantial rise in costs arising from higher fuel and material prices,” said S&P Global economist David Owen.

While the upsurge was largely driven by volatility in commodity markets owing to the war in Ukraine, which should ease over time, it added to already sharp inflationary pressures from the pandemic which appear more persistent, he said.

Further, supply chains also came under increased pressure in March, with firms seeing a renewed rise in the incidence of delivery delays. Survey respondents often indicated that this was owing to the continuation of zero-Covid-19 policies in China, leading to stoppages in production and on key supply routes as lockdowns were reimplemented.

“With these headwinds on growth still at play, firms showed the least confidence in future activity since August last year. Despite output falling, businesses also raised their purchases at the quickest rate in ten months in a bid to boost safety stocks and offset at least some of the expected rise in input prices over the next few months,” Owen said.

INFLATION AND OUTPUT

With fears of high inflation persisting and increased reports of material shortages, business confidence in future activity weakened to a seven-month low. Firms attempted to build safety stocks but were confronted by increased delivery delays owing to hold-ups in supply, especially from China.

Cost pressures sharpened across the South African economy during March, as the war in Ukraine drove increased concerns over the supply of global commodities. Survey respondents especially highlighted an increase in fuel prices, which contributed to the fastest rise in total input costs since June 2016.

This translated into an even sharper uplift in average selling prices. The overall rise in charges was the second-quickest on record, with only a stronger increase seen in February 2014.

Despite these headwinds, the S&P Global South Africa PMI rose to a four-month high of 51.4 in March, up from 50.9 in February and above the 50 threshold. This was largely owing to a renewed increase in employment, with this index having a 20% weighting on the headline figure.

“New-order volumes also rose during March, although the rate of growth was down fractionally from February and marginal. While panelists indicated that higher prices stemmed client demand in many cases, the reopening of the economy after lockdown measures remained the principal driver of sales.

“In addition, while export orders fell over the month, the rate of decline was the softest seen since September last year,” S&P said.

Simultaneously, output levels fell back into contractionary territory, with firms often noting that soaring input costs and further material shortages disrupted activity. Backlogs of work grew for the first time in four months, albeit only slightly.

Further, companies also mentioned a drop in the availability of input goods usually sourced from China, amid reports that lockdowns in key industrial areas had reignited supply chain problems.

“The latest survey data pointed to a sharper lengthening of input lead times, which contributed to a slight reduction in inventory levels.”

Additionally, to try and boost safety stocks, input purchasing at South African firms increased for the second straight month in March, with the rate of expansion ticking up to the strongest since May 2021. Respondents hoped that this would help to limit the damage of future material shortages and price rises.

“Meanwhile, the year-ahead outlook for activity worsened markedly during March, after climbing to the highest in over seven years in February. However, despite wide concerns over inflation and supply risks, sentiment remained stronger than the long-run trend, as firms continued to predict a positive impact from the lifting of Covid-19 restrictions.

“This overall confidence aided a modest increase in employment that was the quickest seen in nine months,” S&P said.