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Global PMI signals fastest rise in firms costs for over 12
years as higher material prices are accompanied by record jump in
service sector costs
Charges for goods and services rise at steepest rate for over a
decade, led by the US and Brazil
Weak consumer services price inflation keeps lid on eurozone
price pressures
A key global gauge of companies' input cost inflation rose to
its highest level for over 12 years in February, feeding through to
the steepest increase in average selling prices for goods and
services for over a decade.
Upward price pressures showed signs of spreading from basic
manufacturing sectors through to consumer goods, autos and
machinery makers, as well as through to services, hinting at
broad-based inflationary pressures. However, trends varied by
country: while the US and Brazil saw especially marked increases in
price gauges, eurozone inflationary trends were dampened by falling
prices for consumer services.
The input prices index from the JPMorgan Global Composite PMI,
compiled by IHS Markit from its proprietary business surveys, rose
to its highest since September 2008 in February, indicating the
steepest rate of input cost inflation for just over 12 years. Costs
have now risen globally over the past nine months, having fallen
sharply in April and May as demand collapsed amid the initial
lockdowns due to the coronavirus disease 2019 (COVID-19) pandemic,
with the rate of increase gathering momentum markedly in recent
months.
Manufacturers' costs rose especially sharply, increasing at a
pace not seen since April 2011, but service sector costs also
jumped higher, growing at the sharpest rate since September
2008.
While factories have reported higher costs due to rising
commodity prices as demand revives and economies recover from
lockdowns, often exacerbated by supply shortages and higher
shipping costs, in the service sector higher purchased goods prices
have been accompanied by widespread reports of increased PPE costs
and rising wages, which have put additional pressure on companies'
margins.
Hence both sectors also saw average selling prices rise sharply
in February. In manufacturing, prices charged for goods leaving the
factory gate showed the steepest increase since May 2011 while
average rates levied for services saw the second-quickest rise
since October 2018, the latest increase beaten only slightly by
that seen last November.
Brazil and US see steepest price pressures
Price trends varied markedly among the world's major economies,
however, especially in the service sectors.
The steepest price increases were reported in Brazil, where
average prices charged for goods and services rose at the steepest
rate since the survey began in 2007, followed by the US, where the
latest rise was exceeded only by the prior survey high seen last
November. While Brazil registered the highest rate of manufacturing
price inflation among the world's largest economies, the US
reported the steepest service sector inflation.
Selling price inflation in Russia meanwhile hit a two-year high,
while 28-month and 12-month highs were reported in Australia and
the UK respectively. More moderate gains were seen in China,
Germany and India, but output prices fell in France, Spain and - to
a marginal extent - Italy, in all cases driven by lower service
sector prices. In the eurozone as a whole, average prices charged
for goods and services nonetheless rose for the first time since
February 2020.
Price trends also varied markedly by sector, though only telecom
service providers reported a fall in charges during February. With
96% of all 26 detailed PMI sectors reporting higher prices in
February, inflationary pressures are more widespread than at any
time since March 2019.
While the sectors reporting the steepest price increases tended
to be focused on basic commodities, such as paper and timber
products, basic resources, metals, mining and chemicals, the
February survey brought further signs of these price increases
feeding through to other sectors which tend to use these products
as inputs. Most notably, autos and parts makers reported the
joint-highest rate of output price increase since comparable global
data were available in 2009. Similarly, selling price inflation for
machinery and equipment and construction materials climbed close to
survey highs during the month, and prices charged for consumer
goods rose at the steepest rate since May 2011, led by a
survey-record increase in the US. Food and drink prices also rose
at the sharpest rate for nearly a decade.
In contrast, charges for consumer services rose only modestly,
reflecting weak demand for services such as tourism and recreation
in particular, helping to keep a lid on inflationary pressures,
notably in Europe and to a lesser extent Asia.
Feed-through to consumer prices
The degree to which higher prices charged by companies for goods
and services feed through to consumer price inflation will depend
on a number of factors. Most importantly, it will depend on the
extent to which higher wholesale prices are soaked up by retailers,
which could limit the pass-through of higher costs to the consumer.
Nevertheless, the PMI indices tend to give a reliable guide to the
amount of inflationary pressure in the economy, as illustrated by
comparisons against annual rates of consumer price inflation.
Especially high pressure on CPI is signalled in Brazil and the US,
for example, while a more moderate increase is signalled for the UK
and only a modest uplift is indicated for the eurozone.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
