Inflationary worries resurface as eurozone June PMIs show prices rising
By Frank Prenesti
Date: Wednesday 23 Jun 2021
(Sharecast News) - Soaring demand and rising prices in the eurozone in June have fuelled further concerns about inflation after a key survey showed June business activity in the region rising at its fastest rate in 15 years this month.
Economic data group IHS Markit said the "impressive progress" of vaccinations was jumpstarting the single-currency area, driven by eased restrictions that are at their lowest since September.
The firm's Purchasing Managers index - which shows trends in the manufacturing and service sectors - said activity leapt from 57.1 in May to a 59.2 in June, far above the 50-point level that indicates growth and beating the consensus of 58.8.
It also set the scene for major growth in the second and third quarters, closing the chapter on a double-dip recession that came with the lockdowns of last autumn and winter, the firm said.
Strong growth was creating its own spillover effects, with supply chains under pressure and prices reflecting the sharp increase in demand, IHS Markit said. Markets fell sharply last week as the US Federal Reserve turned hawkish on inflation and brought forward its timetable for possible interest rate rises to 2022.
However, European Central Bank chief Christine Lagarde told lawmakers in the European Parliament on Monday that the effects of the US spillover on euro-area inflation "are expected to be moderate" with the two economies "clearly in a different situation".
"The strength of the upturn - both within Europe and globally - means firms are struggling to meet demand, suffering shortages of both raw materials and staff," said Chris Williamson, chief economist at IHS Markit.
"Under these conditions, firms' pricing power will continue to build, inevitably putting further upward pressure on inflation in the coming months."
This "brightening prospect of life increasingly returning to normal has... pushed confidence to an all-time high, fuelled greater spending and encouraged hiring," said Chris Williamson, Chief Economist at IHS Markit.
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