Business

Growing activity across Europe is fueling inflationary pressures

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Companies across Europe have been experiencing the largest growth in orders and activity for several years, creating a growing shortage of supplies and rising prices, according to a closely tracked survey.

Eurozone business activity has grown at the fastest pace for 15 years in June following the lifting of closure measures, while business activity in the UK is also remaining, according to the IHS Markit’s index of purchasing managers released Wednesday.

IHS Markit’s flash eurozone PMI pink to 59.2 in June, from 57.1 in May, its highest level since June 2006 and well above the expectations of most economists. A reading of more than 50 indicates that most companies have reported an expansion from the previous month.

Germany’s PMI hit a decade-high 60.4, while France’s PMI went up to 57.1. The UK’s interim PMI was 61.7, lower than the record 62.9 reported in May, but one of the highest since the series began in 1998.

The results of the survey suggest that Europe’s major economies recorded a strong rebound in the second quarter from their historic pandemic-driven contractions over the past year. They have confirmed readings from recent high frequency data show that consumers in Europe are returning to bars and restaurants, booking holidays and traveling to work again.

«U [eurozone PMI] the data set the stage for an impressive expansion of [gross domestic product] in the second quarter, followed by even stronger growth in the third quarter, ”said Chris Williamson, chief economist at IHS Markit.

Nadia Gharbi, an economist at Pictet Wealth Management, said: “It’s time to boom for eurozone companies, even if it doesn’t matter so much the level of SMEs but the direction.”

However, building inflationary pressures are becoming more and more of an issue as manufacturing and service companies say they are passing on higher entry costs to customers at an unprecedented rate.

IHS Markit said eurozone companies have reported the largest increase in their work backlogs since data collection began in 2002, as supply problems have shifted from manufacturing to the manufacturing sector. services, where backlogs are increasing at the fastest rate in more than 20 years.

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It was a similar picture in the UK, where income cost inflation rose for the fifth straight month, equal to its previous highest pace, and output price inflation touched a record high for the next second month.

Williamson predicted “further upward pressure on inflation in the coming months,” adding that many companies were “struggling to meet demand, suffering from shortages of both raw materials and personnel.”

Inflation has already surpassed the targets of the European Central Bank and the Bank of England, at 2 per cent in the euro area and above that in the UK. But both central banks have said they expect price pressures to be temporary and to disappear next year.

Blockchain service companies have reported a particularly strong rebound in activity and “higher supplier prices, increased fuel and transportation costs, increased wage pressures,” IHS Markit said. Billed prices for goods and services “are increasing at an unprecedented rate.”

But in Germany there have been indications that supply chain problems could ease after “a slight drop in the number of companies reporting longer delivery times on materials and components”.

According to the IHS Markit survey, the rapid expansion of activity has led companies in the UK to employ workers at the fastest pace in the history of the data series, while eurozone companies are adding staff in addition to the highest rate since August 2018.

Jack Allen-Reynolds, an economist at Capital Economics, said: “The demand for maneuver has suddenly waned since much of the economy opened up quickly, and this would never have been an easy process.”

Flash PMI surveys are published about 10 days before the last PMI, and typically include about 80 percent of total responses.


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