Eurozone service-sector inflation rises sharply – data

The January PMI showed a modest rise in private-sector activity but significant underlying price pressures and more job losses in Germany

Service-sector inflation accelerated sharply in January across the 21-country Eurozone bloc, while input prices for businesses continued to rise, according to the flash HCOB Purchasing Managers Index (PMI) published by S&P Global on Friday. The PMI print also showed a steep decline in staffing at German companies.

The Eurozone’s flash PMI provides an early snapshot of business activity across both manufacturing and services. It tracks whether companies are generally expanding or contracting, with numbers above 50 meaning growth and below 50 meaning contraction. It also provides insight into cost levels and employment across the economy.

The headline composite PMI is 51.5, which remains unchanged month-on-month, and in line with forecasts. The manufacturing PMI continued in contraction at 49.4. This came as input costs across the sector rose at the sharpest pace in three years. Output prices, meanwhile, actually continued to fall, meaning these costs were not being passed on to buyers.

The services PMI slipped to a four-month low of 51.9. However, it wasn’t the index itself but rather the significant gain in output prices across the sector that caught the eye of analysts, coming in at the highest level in 11 months.

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“Inflation in the services sector, which the central bank is watching particularly closely, has increased significantly in terms of sales prices,” said de la Rubia.

Overall, “the recovery still looks rather feeble,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said, adding that, for the [European Central Bank], these results are anything but reassuring.”

The report also noted that companies cut staffing levels for the first time in four months, driven by job losses in Germany. Excluding the pandemic, the decline in German staffing levels was the largest since November 2009. Employment, however, continued to rise across the rest of the bloc.

German companies have been hemorrhaging jobs in recent years, especially in the manufacturing sector, where structurally higher energy costs and competitive pressure have put many legacy industrial powerhouses on shaky footing.