Irish factories reported a sharp increase in the price of key inputs last month, pointing to the early impact of the US-Iran war on materials and energy costs, AIB said on Wednesday.
Still, the bank’s latest purchasing managers’ index (PMI) for the manufacturing sector indicates that factories were able to pass on those higher costs to their customers due to strong demand for their products at home and abroad.
The March index moved higher above the neutral 50 threshold – which separates growth in activity from contraction – to 53.7 from 53.1 in February, indicating further growth in activity.
Production volumes also increased at the fastest pace since July 2025, AIB said. Increases have now been recorded in each of the last five consecutive quarters.
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Larger volumes of new work from abroad helped boost manufacturing order books in March, according to the report, which is based on a survey of some 250 companies.
Manufacturers reported a “solid increase” in staffing numbers as they scrambled to boost production capacity to meet the strong demand, AIB said.
On a more troubling note, goods producers signalled a “steep and accelerated pace” of input cost inflation, the report authors noted.
“Around 42 per cent of the survey panel reported a rise in their input prices since the previous month, while only 2 per cent suggested a reduction,” they said. “This pointed to the fastest rate of cost inflation since December 2022.”
Anecdotally, manufacturing businesses cited higher prices for energy, fuel, metals, and polymers, AIB said.
Consequently, producers said they were charging higher prices for their products, citing the need to pass on their rising costs.
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With demand still strong, firms were able to increase output prices, said AIB chief economist David McNamara, though fierce price competition “limited the ability to pass on all of the cost increases”.
“The expansion in March was due to sustained gains in output, new export orders and employment, despite signs of rising input prices from the Middle East conflict,” said McNamara.
He added: “Firms cited improving demand from UK clients, while others noted the war in the Middle East as having a negative influence on new business from abroad in some instances.”
Iran’s effective closure of the Strait of Hormuz and its attacks on energy infrastructure in the Gulf in response to the US-Israeli bombing campaign are expected to have a seismic effect on the global economy, choking supply chains and raising the price of vital materials.
The International Monetary Fund on Monday warned that “all roads lead to higher prices and slower growth worldwide” should the conflict continue to squeeze the quantity of oil, gas, fertilisers and other inputs produced in and exported from the region.
