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Companies in the UAE are also facing increases on their staff costs, especially on new hiring. Image Credit: WAM

Dubai: Inflation-linked costs are starting to pile up decisively for UAE’s private sector businesses, including when it comes to recruiting new staff but at higher wages. Input costs in June had risen at the ‘fastest pace for 11 years’, according to the PMI data from S&P Global.

But on the plus side, “latest data suggested that firms were unwilling to pass higher costs on to customers in June, as output charges were reduced at the fastest rate in over a year-and-a-half,’ said David Owen, Economist at S&P Global, which brings out PMI (Purchasing Managers Index) for key global economies on a monthly basis. “The threat of strong competition led them to offer price discounts to protect their sales.”

What’s rising

Higher fuel costs have also been a factor in businesses recording higher cost of operations. After touching a high in May, the pace of sales recorded by UAE businesses slowed to its lowest point since January. This would place pressure on profitability, a fact Owen acknowledges. “While firms remained positive about future activity, the survey data suggested that they are unlikely to maintain cost margins at the current level. The ratio between input and output price indices was the highest on record, signalling that price rises for customers are likely in the coming months."

Thankfully, many of the businesses recorded ‘sharp rise’ in new orders during June, with 21 per cent respondents month-on-month growth. Helping the process was the continuing increase in orders from overseas clients.

The S&P Global UAE Purchasing Managers' Index for June came to 54.8, a slight reduction on the 55.6 in May. Anything over 50 is seen as favourable. The PMI assigns a measure based on a pool of private sector entities and their input and output costs, orders won, etc..

“The performance of the non-oil sector has improved in each of the past 19 months, helped by a recovery in economic conditions following the lifting of Covid restrictions,” the report adds.