Rate of inflation in manufacturing sector eases to 19-month low

That rate of inflation in the manufacturing sector eased to a 19-month low in September, partly reflecting weaker demand and reduced supply chain pressures, according to the latest PMI data from AIB.

The rate of output price inflation was little-changed from August’s seven-month low, but still higher than in any survey period prior to July 2021, the bank said on Monday.

The latest PMI survey data showed a mixed performance from the Irish manufacturing sector in September.

Although output was only fractionally lower on the month and the rate of job creation accelerated, new orders and backlogs both fell at faster rates.

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Lower demand led to a cut in purchasing and a further easing of pressure on supply chains. The rate of input price inflation eased to a 19-month low, but output price inflation edged higher.

The headline figure is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases. Any figure greater than 50 indicates overall improvement of the sector.

The PMI registered 51.5 in September, up slightly from August’s 2-month low of 51.1, indicating a twenty-fourth successive overall improvement in operating conditions in the goods producing sector.

The rate of growth was the second-weakest since October 2020 and only modest, with the PMI remaining below its long-run average of 52.3.

The slight rise in the PMI was driven by a much weaker fall in output and a faster rate of employment growth.

These twin impacts were almost offset by a sharper decline in new orders, reduced pressure on suppliers’ delivery times, and a slower rise in stocks of purchases.

The overall improvement in conditions signalled by the headline figure masked a fourth successive monthly contraction in new orders, the longest sequence of consecutive monthly falls since mid-2019. Moreover, the rate of decline was the fastest since January 2021.

New export orders also fell for the fourth month running, albeit at a modest pace. Lower demand reportedly reflected increased caution among customers due to the risk of a recession in the economy, high prices and geopolitical instability. Production declined for the fourth month running in September.

That said, the latest contraction was only marginal and weaker than the drop in new work, reflecting efforts to clear backlogs.

Incomplete work fell for the fifth consecutive month, and at the fastest rate since January 2021. The comparatively strong trend in output versus new orders was also reflected in another solid rise in stocks of finished goods, the third in succession and the fifth-sharpest on record.

A sign of weak output over the coming months was provided by the new orders to inventories ratio, which fell to its lowest since May 2020.

The 12-month outlook for production improved slightly since August, but was still the second-lowest in nearly two years with anecdotal evidence highlighting recession and inflation risks.

Despite the weak outlook, employment rose at the fastest rate in three months.

Irish manufacturers cut their purchases of inputs in volume terms for only the second time since early-2021 in September. This was linked to a drop-off in demand as well as high raw material and energy prices placing pressure on budgets.

Pressure eased on supply chains, with lead times lengthening to the smallest degree since November 2020. But the delayed delivery of previously ordered items led to a further rise in input stocks. Some firms mentioned recent bulk buying to avoid price increases.

Input prices continued to rise steeply in September, linked to ongoing global shortages, the strong US dollar and high energy prices.