Inflationary pressure in services sector now at 20-year high

AIB’s latest barometer points to sharp build up in price pressure

Regent Barber, Temple Bar, Dublin. Inflationary pressure in the services sector in Ireland is now at its highest level in over 20 years, according to AIB.

Regent Barber, Temple Bar, Dublin. Inflationary pressure in the services sector in Ireland is now at its highest level in over 20 years, according to AIB.

 

Inflationary pressure in the services sector in Ireland is now at its highest level in more than 20 years, according to AIB.

The sector, which includes everything from hotels and hairdressers to IT firms and telecoms, has been rebounding strongly with the easing of restrictions.

The latest AIB services purchasing managers’ index (PMI) recorded another rapid increase in new and outstanding business in August.

Cost pressures across the sector continued to build with input price inflation the highest since December 2000, the bank said. This led to the sharpest rise in charges levied for services since October 2000. Charges have now risen for six months running.

Costs

Anecdotal evidence from survey respondents linked higher costs to salaries, fuel, Brexit, travel, insurance premiums and freight charges.

The transport, tourism and leisure sector saw the strongest cost inflation. The report also noted that service providers were passing on higher costs to customers.

Euro zone inflation surged to a 10-year high of 3 per cent in August but the European Central Bank insists the strengthening of price growth is down to “transitory factors” connected to the resumption of economic activity after lockdown and higher oil prices.

AIB’s headline PMI for the services industry here was 63.7 last month, down from 66.6 in July but signalling another marked increase in services output. A figure above 50 signals an expansion in output.

The month-on-month rate of expansion slowed for the first time in the current six-month growth sequence, but was still the second strongest since January 2016, AIB said.

All four sub-sectors registered “marked rates of expansion”, the bank said, with technology, media and telecoms (65.8) overtaking transport, tourism and leisure (63.8) as the fastest-growing area. Financial services (62.9) and business services (62.5) also registered strong growth.

Capacity

The sub-index for new business rose for the sixth month running in August as pent-up demand continued to be released with the lifting of Covid restrictions. Service sector employment also rose for the sixth month running in as firms sought to boost capacity to meet demand.

AIB chief economist Oliver Mangan said the services PMI has now been above 60 for four consecutive months, “highlighting the very sharp rebound in activity for the sector as pent-up demand continued to be released amid the easing of Covid-19 restrictions”.

“Indeed, against this backdrop, new business rose for a sixth month running, with the rate of growth representing its third fastest in the last four-and-a-half years,” he said.

“There was also another solid performance from external demand. New export orders continued to expand, with part of this attributed to opportunities arising from Brexit, as well as the lifting of restrictions in other countries,” he added.