Euro zone manufacturing growth strong but supply issues raise prices

IHS Markit’s final manufacturing PMI fell to 61.4 in August from July’s 62.8

An ongoing shortage of materials and a lack of transport availability meant sellers of the goods factories need were again able to ramp up their charges. Photograph: iStock

An ongoing shortage of materials and a lack of transport availability meant sellers of the goods factories need were again able to ramp up their charges. Photograph: iStock

 

Euro zone manufacturing growth remained strong in August but supply chain issues caused by the coronavirus pandemic continued to constrain supplies of the raw materials factories need, driving up prices, a survey showed on Wednesday.

The easing of restrictions imposed to stop the coronavirus from spreading has driven demand but many firms have reported logistical troubles, product shortages and a labour crunch.

IHS Markit’s final manufacturing Purchasing Managers’ Index (PMI) fell to 61.4 in August from July’s 62.8, below an initial 61.5 “flash” estimate.

An index measuring output, which feeds into a composite PMI due on Friday and seen as a good guide to economic health, fell from July’s 61.1 to 59.0. Anything above 50 indicates growth.

“Euro zone manufacturers reported another month of buoyant production in August, continuing the growth spurt into its 14th successive month,” said Chris Williamson, chief business economist at IHS Markit.

“The overriding issue was again a lack of components, however, with suppliers either unable to produce enough parts or facing a lack of shipping capacity to meet logistics demand.”

An ongoing shortage of materials and a lack of transport availability meant sellers of the goods factories need were again able to ramp up their charges. The input prices index thus remained high at 87.0, although shy of July’s record 89.2.

As a result, factories again sharply increased the prices they charge.

Euro zone inflation surged to a 10-year high last month, official data showed on Tuesday, challenging the European Central Bank’s benign view on price growth.

The ECB wants inflation at 2 per cent but prices in the 19 countries sharing the euro rose 3.0 per cent in August, fuelled by unusually large increases in the prices of industrial goods.

Despite those price rises, demand remained resilient and factories built up a backlog of work even though they increased headcount and depleted their stocks of finished goods. – Reuters