This week, we analyse the latest Purchasing Managers’ Index (PMI) data released by the Central Bank of Nigeria (CBN) for October and outline our expectations for the final Monetary Policy Committee (MPC) meeting of the year, scheduled for early next week. The CBN published its fourth PMI report of the year, marking a return to regular reporting after a four-year hiatus. The PMI is a leading macroeconomic indicator that signals the short- to medium-term direction of the general business environment based on survey feedback obtained from 1,750 purchasing and supply executives across the Industry, Services, and Agriculture sectors. A PMI score above 50.0 points signifies expansion, scores below 50.0 points indicate contraction, and a score of 50.0 points implies no change from preceding month.
For October, the composite PMI weakened to 49.6 points from 50.5 points in September, halting two consecutive months of broad-based expansion in the business environment. The underwhelming composite PMI print was driven by mixed outcomes across the three industry constituents – Industry sector PMI contracted to 49.3 points from 49.7 points, Services sector PMI stagnated at 50.0 points, while Agriculture sector PMI expanded albeit at a slower pace to 50.3 points from 51.4 points the prior month.
We note that the contraction in Industry PMI was stoked by downbeat performance across key metrics, including New Orders (49.7), Employment (48.7), and Stock of Raw Materials (49.2). Among the 17 subsectors surveyed, Food, Beverage, and Tobacco products recorded the sharpest contraction, reflecting the dual shock of households’ depleting purchasing power and negative exchange rate movement on production cost (NGN/USD lost 8.0% m/m to ₦1,671.32/USD at NAFEM window in October). Conversely, the Cement sub-sector recorded the largest expansion. Furthermore, Services sector’s PMI stagnated at 50.0 (down from 51.0 in September), driven by mix trend across sub-indices – New Orders (50.8) and Stock of Raw Materials (50.7) expanded, while Output (49.6) and Employment (49.0) contracted. Within the Services sectors, Educational Services recorded the highest expansion, in line with seasonal expectations, while Transport & Warehousing experienced the largest contraction, likely due to high energy costs.
Finally, the marginal expansion in Agriculture sector PMI to 50.3(albeit slower than September’s 51.4) was inspired by upbeat performance of Output (53.2) and Employment (50.4) sub-indices, while New Orders (49.5) and Stock of Raw Materials (48.3) contracted. Crop Production led growth within Agriculture while Forestry recorded the largest contraction. October’s weak PMI reading underscores worsening macroeconomic conditions, compounded by inflationary pressures that have intensified since the last MPC meeting in September. The latest Consumer Price Index (CPI) report from the National Bureau of Statistics (NBS) revealed a y/y inflation increase of 33.9% in October, the steepest rise in four months.
In the same vein, m/m inflation rate nudged higher to 2.6% from 2.5% in the preceding month, driven by food inflation at 2.9%, which exceeded the 12-month average of 2.8%. Farm and processed food inflation rose by 3.0% and 2.9% m/m, respectively. These increases were attributed to the disruptive impacts of flooding in agrarian regions, insecurity limiting access to farmlands, and rising transportation costs. Energy price increase (+2.2% m/m) and foreign exchange volatility further strained prices. Fiscal pressures have also intensified, with the national debt profile hitting ₦134.3tn in H1 (approximately 52.0% of GDP) with further possibility of exceeding ₦150.0tn in 2025, given the ₦13.5tn deficit projection in the MTEF.
Combined with weak PMI data, these developments provide critical context for the MPC’s upcoming deliberations. At its September meeting, the Committee raised the Monetary Policy Rate (MPR) by 50bps to 27.25%, emphasising concerns over core inflation, money supply growth, fiscal deficits, and food price pressures. Although headline inflation was trending downward at the time, core inflation remained elevated, driven by energy costs and other structural factors. The MPC also noted progress in the FG’s efforts at addressing insecurity, as well as the reduction in backdoor deficit financing through Ways and Means.
There was also optimism surrounding the improvement of broader global and domestic macroeconomic indicators, as well as the possible role the Dangote Refinery could play in moderating transportation costs thereby curbing inflation. However, the MPC faces a difficult decision given the recent re-inflationary signals in major external economies, uptick in domestic price levels, weaker PMI readings, bureaucratic hinderance to Dangote’s supply of PMS locally, fiscal deficit build-up, and the sustained expansion in money supply (M3, the broadest measure of money supply, increased by 1.6% m/m to ₦109.0tn in September).
Notwithstanding, the Committee’s steadfast focus on curbing inflation and achieving positive real interest rate to attract foreign investment suggest that a further rate hike is imminent. Against this backdrop, we expect at least a 25bps increase to the MPR at the final policy meeting for the year next week Tuesday.
Afrinvest
