Global supply issues weigh on local production prices - survey

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The IHS Markit PMI rose slightly to 50.3 points in March.
The IHS Markit PMI rose slightly to 50.3 points in March.
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  • Supply shortages contributed to rising inflationary pressures for firms, the IHS Markit PMI shows.
  • While firms had to deal with higher prices, there was limited pass-through to consumers.
  • Some firms introduced price discounts to encourage market demand.

Domestic production experiences cost pressures, driven by global supply chain issues, the IHS Markit indicated.

IHS Markit on Wednesday released its Purchasing Managers' Index (PMI) for March. The PMI is an indicator of private sector business performance. A figure higher than 50 indicates an improvement in the sector, while a figure below 50 indicates a deterioration.

The March PMI lifted slightly from 50.2 to 50.3. "The latest reading pointed to a marginal improvement in operating conditions," the report read.

Cost inflationary pressures picked up, as companies had to deal with input shortages linked to global supply issues, the survey revealed.

"South African firms saw a steep mark-up of input prices during March, with the rate of inflation the highest in 29 months and looking likely to accelerate further in the second quarter as global supply issues widen," said IHS Markit economist David Owen.

"… The recent Suez Canal crisis which will likely delay deliveries in April and push global prices higher," Owen added.

In a separate note on the Suez Canal interruption over a week ago, Denys Hobson, logistics and pricing analyst for Investec For Business, noted that there would likely be delays, shortages and price increases over the next two to three weeks.

Hobson expects that higher import prices will eventually be passed onto consumers.

"The additional cost pressures are becoming too high for the small and medium-sized importers. For those companies supplying bigger retailers with imported products, there is little or zero room to readjust pricing after orders have been placed," said Hobson. "As such, these costs and surcharges are likely to be passed down to the consumer in the coming months."

While purchase prices for firms soared to their highest level since October 2018, the pass-through to customers was only partial during March. Output charges increased modestly compared to input costs, the report indicated.

Many firms also offered price discounts to stimulate demand.

On the demand side, new order volumes fell for a fifth consecutive month, the downturn was its fastest since November 2020.

"According to anecdotal evidence, coronavirus disease 2019 remained the chief factor influencing customer orders, leading to falls in both new client sales, contract renewals and export demand."

Labour market

Job reductions continued in March as companies tried to lower costs. Business expectations for the future are slightly lower than in February but still positive.

"Hopes of an end to the Covid-19 pandemic mainly drove firms' optimism, although some respondents were wary of a further decline in sales," the report read.

There may be additional supply constraints to activity in the coming months before the global rollout of vaccines can restore business confidence and global demand, said Owen.

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