Rising inflation global concern, amid better demand, business conditions, says McKinsey

New data on the state of the global economy by McKinsey, the worldwide business and management consultancy, contained in its Global Economic Intelligence, has shown a decline in consumer confidence indexes in the face of pandemic concerns and rising inflation.

It said the subdued consumer activity is not surprising, given high inflation, especially in the emerging economies. Among the many drivers of inflation, energy prices are a major culprit. The price of fuel oil and natural gas pushed upward in September and October.

As the global economy reopens fully on the back of rising rates of vaccinations, expanding trade and industry sectors, there is an exhibition of strong demand across the globe.

In Nigeria, the private sector output recorded a sharp rise in the last month as there was a solid improvement in business conditions.

The global purchasing managers’ indexes (PMI) for manufacturing and services, according to Mckinsey, show healthy expansion, with respective readings of 54.1 and 53.4 points while unemployment is generally seeing a free fall and world trade has effectively recovered to pre-pandemic levels.

The report on Global Economics Intelligence said the world’s economy is exhibiting strong overall demand despite the challenge of pandemic-related disruptions. Consequently, the public-health situation has improved in most surveyed economies, especially as vaccines against COVID-19 have become more available and vaccination programmes are finally making real progress.

On the contrary, there have been challenges of supply-chain bottlenecks and rising inflation across the globe, including Nigeria, which have posed significant obstacles to smoother post-crisis recovery paths, slowing industrial growth, suppressing consumer sentiment, and causing populations real hardship.

Prices in Nigeria, which quickened to a fresh series high, are linked to unfavourable movement in exchange rates and higher costs of raw materials, transportation and staff, thus raising concerns for consumers and most firms.

The StanbicIBTC Bank purchasing manager index (PMI) for October shows firms opted to pass on part of the burden to clients by lifting their selling charges. The report revealed that the rising cost of inputs led firms to protect against future price hikes by adding to their stockpiles.

Also, experts at FBNQuest Research in their October PMI reading said the increasing social unrest in the North-East, which is a major trade hub of the country, has begun to dampen manufacturers’ outlook about the anticipated gains in demand resulting from year-end festivities. It reported that in October, raw materials were more expensive which, given local firms’ reliance on imports, is likely to be due to weakness of the naira and limited FX availability. Similarly, small businesses are more impacted by the fx squeeze because their fx demands frequently fall beyond the scope of eligible items on the official window, and they often lack the capacity to push through the administrative processes necessary to handle their FX needs.

Nevertheless, most economists and forecasting institutions, fortunately, expect that these difficulties will be relatively short-lived and inflation expectations can still remain at a level within the inflation targets of most central banks.