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PMI surveys can quickly highlight the effects of currency
fluctuations on prices
Currencies in Zambia and Turkey show contrasting trends in
recent months
"It was the best of times, it was the worst of times", so begins
the Charles Dickens classic, A Tale of Two Cities. In 'A Tale of
Two Currencies' divergent trends have been seen in Zambia and
Turkey over the second half of 2021 so far, and the latest PMI
business survey data compiled by IHS Markit for these countries
highlight the impacts currency movements can have on inflationary
pressures and business performance.
Zambian kwacha regains ground against US
dollar
Recent years saw the Zambian kwacha come under increasing
pressure versus the US dollar. Between mid-2017 and mid-2021 the
currency depreciated by over 150% against the dollar, contributing
to consumer price inflation peaking at 24.6% in June and July of
this year.
Over the second half of 2021, however, the kwacha has
appreciated against the US dollar following an election won by the
opposition United Party for National Development. The new
government has entered into negotiations with the International
Monetary Fund (IMF) for a support programme and aims to bring down
inflation and domestic borrowing.
The kwacha has gained over 20% against the US dollar over the
second half of the year so far, the best of any of the currencies
tracked by Refinitiv worldwide.
The strengthening currency has been a key factor highlighted by
respondents to the Stanbic Bank PMI survey (compiled by IHS Markit)
for reductions in purchase prices. Firms have been able to keep a
lid on costs despite global price pressures, with lower costs
passed on to customers in the form of selling price reductions.
Charges have consequently been lowered in each of the three months
to November. This discounting has helped companies to secure a
return to growth of new orders and business activity, with both
rising at the sharpest rate in close to three-and-a-half years in
November.
Official data showed that inflation of consumer prices slowed to
19.3% y/y in November, the lowest in the year-to-date but still
well above the 6%-8% central bank target. As such, the Bank of
Zambia raised interest rates from 8.5% to 9% in November.
Turkish lira under pressure
At the other end of the scale, the Turkish lira has fallen in
value by almost 60% against the US dollar over the second half of
the year so far.
The depreciation of the currency has added to a build-up of
inflationary pressures in the Turkish manufacturing sector,
according to the Istanbul Chamber of Industry Turkey Manufacturing
PMI. The rate of input cost inflation accelerated sharply in
November and was the fastest since September 2018, a period which
also followed a sharp depreciation of the Turkish lira. Almost
three-quarters of companies saw their input prices rise over the
month, with a high proportion of those respondents linking the
increase to currency weakness.
In turn, firms felt forced to pass higher input costs on to
their customers and output prices increased at the sharpest pace
since the survey began in June 2005, surpassing the previous record
from September 2018.
Official figures for November showed year-on-year inflation of
producer prices and consumer prices accelerating in Turkey to 54.6%
and 21.3% respectively, with further strong inflation likely in the
months to come, increasing the difficulties faced by Turkish
firms.
These contrasting pictures show the effects currency
fluctuations can have on economic performance, and highlight how
quickly the PMI surveys illustrate these impacts.
To hear about this story, and much more, tune into our latest
podcast, found
here.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
