Business boom across Europe is fueling inflationary pressures – .

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Business boom across Europe is fueling inflationary pressures – .


Companies across Europe are seeing the biggest increases in orders and activity in many years, creating growing supply shortages and pushing up prices, according to a closely watched survey.

Eurozone business activity grew at the fastest pace in 15 years in June after the lockdown was lifted, while UK business activity also remained buoyant, according to the IHS Purchasing Managers Index Markit released on Wednesday.

IHS Markit’s flash eurozone PMI rose to 59.2 in June from 57.1 in May, its highest level since June 2006 and well above most economists’ expectations. A reading above 50 indicates that a majority of businesses reported expansion from the previous month.

Germany’s PMI hit a decade high at 60.4, while France’s PMI hit 57.1. The UK’s intermediate PMI was 61.7, lower than the record 62.9 recorded in May, but among the highest since the series began in 1998.

The survey results suggest that major European economies will post a strong rebound in the second quarter from their historic contractions caused by the pandemic over the past year. They confirmed recent high-frequency data readings showing European consumers flock to bars and restaurants, book vacations and head to work again.

” The [eurozone PMI] data sets the scene 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, Economist at Pictet Wealth Management, said: “It is boom time for Eurozone companies, although it is not so much the level of PMIs that matters as the leadership.

However, growing inflationary pressures are becoming more of an issue as manufacturing and service companies have said they are passing higher input costs on to their customers at an unprecedented rate.

IHS Markit said companies in the euro area reported the largest increase in their backlogs since data collection began in 2002, as supply issues spilled over from manufacturing to the service sector. , where arrears have grown at the fastest rate in over 20 years.

It was a similar picture in the UK, where the measure of input cost inflation based on business leaders’ reports rose for the fifth consecutive month, tying the highest rate on record, and producer price inflation rates have reached an all time high. high for the second consecutive 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 raw materials and personnel.”

Inflation has already exceeded the targets of the European Central Bank and the Bank of England, to 2% in the euro area and above that of the United Kingdom. But both central banks have said they expect price pressures to be temporary and subside next year.

The bloc’s service companies reported a particularly strong rebound in activity and “higher supplier prices, increased fuel and transportation costs, as well as mounting wage pressures,” said IHS Markit. Prices charged for goods and services “have increased at an unprecedented rate.”

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

Rapid expansion in activity, according to the IHS Markit survey, has pushed UK companies to hire workers at the fastest pace in the history of the data series, while companies in the Eurozone have added additional staff at the highest rate since August 2018.

Jack Allen-Reynolds, economist at Capital Economics, said: “The demand for labor suddenly increased as large parts of the economy opened up at the same time, and it was never going to be a process. easy. ”

Flash PMI surveys are released approximately 10 days before final PMIs and typically include around 80 percent of total responses.

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