Booming business in Europe adds to inflationary pressures

A closely watched survey shows that companies across Europe are experiencing the largest increase in orders and activities in years, leading to increased supply shortages and pushing up prices.

According to the IHS Markit Purchasing Managers Index released on Wednesday, after the lifting of the blockade, business activities in the Eurozone expanded at the fastest rate in 15 years in June, while business activities in the UK also remained active.

IHS Markit Eurozone PMI Initial Value rose It was 59.2 in June, higher than 57.1 in May, and the highest level since June 2006, which was much higher than most economists expected. A reading of more than 50 indicates that most companies report an expansion from the previous month.

Germany’s PMI reached a ten-year high of 60.4, while France’s PMI rose slightly to 57.1. The UK’s mid-term purchasing managers’ index was 61.7, which was lower than the record 62.9 reported in May, but it was the highest level since the beginning of the series in 1998.

The survey results indicate that major European economies will rebound strongly in the second quarter from the historical pandemic-driven contraction of the past year.They confirmed the most recent reading High frequency data This shows that European consumers are flocking back to bars and restaurants, booking holidays and going to work again.

“This [eurozone PMI] Data lays the foundation for impressive expansion [gross domestic product] Chris Williamson, chief business economist at IHS Markit, said that there will be stronger growth in the second quarter.

Nadia Gharbi, an economist at Pictet Wealth Management, said: “This is a booming period for Eurozone companies, even if what matters is not the level of PMI, but the direction.”

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

According to IHS Markit, since the start of data collection in 2002, Eurozone companies have reported the largest increase in the backlog of work because supply problems have spread from manufacturing to the service industry, with the backlog growing at the fastest rate in more than 20 years.

The situation in the United Kingdom is similar. Input cost inflation has risen for the fifth consecutive month, reaching an all-time high, and output price inflation has reached a record high for the second consecutive month.

Williamson predicted that “inflation will face further upward pressure in the coming months”, adding that many companies “are struggling to meet demand, with shortages of raw materials and employees”.

The inflation rate has exceeded the targets of the European Central Bank and the Bank of England, and the Eurozone is 2%, which is higher than the UK. But both central banks said they expect price pressure to be temporary and will subside next year.

IHS Markit stated that the group’s service sector reporting activity rebounded particularly strongly, with “increased supplier prices, increased fuel and transportation costs, coupled with rising wage pressures”. The prices of goods and services “increased at an unprecedented rate.”

But in Germany, there are signs that after “the number of companies reporting longer delivery times for materials and components has declined slightly,” supply chain problems may be alleviated.

According to the IHS Markit survey, the rapid expansion of the event prompted British companies to recruit employees at the fastest rate in the history of the data series, while Eurozone companies added additional employees at the highest rate since August 2018.

Capital Investment’s macro economist Jack Allen Reynolds said: “As most economies open up at the same time, the demand for labor has suddenly surged. This will never be an easy process.”

The PMI quick survey is released about 10 days before the final PMI is released, and usually includes about 80% of the total response.

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