Manufacturers hike prices to pass cost burdens on to customers amid inflationary pressures

Manufacturers have hiked prices amid efforts to pass greater cost burdens through to customers, as input prices increased markedly again in July, the latest PMI data from AIB indicates.

The latest report highlighted continued challenges across the Irish manufacturing sector. Output declined for the second time in as many months, and at a faster rate, as order book volumes fell at the strongest pace since January 2021.

Demand conditions weakened both domestically and abroad, in part due to rising costs. Nonetheless, firms raised their charges again in July in response to greater cost burdens.

The headline PMI registered 51.8 in July, down from 53.1 in June. Any figure greater than 50 indicates overall improvement of the sector.

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Although still above the neutral level of 50, the latest figure was indicative of the slowest improvement in the health of the sector since January 2021.

Trends for output and new orders continued to contrast with the headline figure in July. Factory production declined for the second month running, with the pace of reduction accelerating since June. Panellists linked the latest fall to weak client demand.

Client demand

That said, the fall in output was only marginal overall. Weak demand was reflected in a further contraction of new orders during July. The rate of decline was the quickest since January 2021 and moderate overall, also outpacing that for output.

Weak client demand, in part due to higher prices, was attributed through anecdotal evidence to the latest fall. Weakness was also apparent with respect to order book volumes from abroad, as new export orders fell marginally.

Elsewhere, factory gate charges rose again in July, with the rate of charge inflation picking up on the month and the fifth quickest on record.

Firms were reportedly hiking prices amid efforts to pass greater cost burdens through to customers, as input prices increased markedly again.

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At the same time, Irish goods producers reduced their buying activity for the first time since February 2021. Survey respondents linked the fall, which was moderate, to lower production requirements.

Nonetheless, pre-production inventories increased again, attributed by panellists to efforts to build safety stocks in previous months. Moreover, the rate of increase was the fastest for six months and strong overall. Stocks of finished goods, meanwhile, rose for the first time in over a year.

Concurrently, average suppliers’ delivery times lengthened again amid reports of material shortages and transport delays. Delays were the least widespread since November 2020, however.

Capacity pressures

Despite sustained falls in output and new work, Irish goods producers expanded their staffing levels further in July. The rate of job creation was the softest since February 2021, but still moderate overall.

The easing rate of job creation partially reflected reduced capacity pressures at manufacturers, as backlogs of work declined for the third month in a row and at a sharp pace.

Looking ahead, manufacturers remained positive overall towards the outlook for output over the next 12 months, with optimism ticking up to a three-month high. However, the level of sentiment remained historically subdued amid concerns around the near-term economic outlook.