Inflation weighs on recovering services sector as fuel and labour costs climb
The services sector, which includes hotels and bars, continued to recover after the lifting of Covid restrictions.
Inflation in the services sector climbed to its highest level in 11 years last month, according to the latest Services Purchasers Managers Index (PMI) from AIB.
Increasing cost pressures were linked to a wide range of sources, including fuel, freight charges, wages – especially for drivers – insurance, electricity, customs and Brexit.
On the back of the soaring costs, service sector charges were increased at the third fastest rate on record, according to the data. The rate of charge inflation accelerated for the sixth time in seven months to the strongest level since October 2000.
The services sector – which spans industries from bars and hotels to banking – is the biggest contributor to the country’s economy.
Last month the business activity index recorded a reading of 63.4, only slightly below the 63.7 level registered in both August and September. Any reading over 50 is deemed growth.
The October reading indicates another big expansion in output, as the economy continues to recover from Covid restrictions.
The volume of incoming new business expanded rapidly last month, which was attributed to improving consumer demand as more businesses reopened. While the rate of expansion eased slightly since September, it was among the fastest registered over the past six years.
The transport, tourism and leisure sector overtook financial services as the fastest growing sub-sector in October.
New business from export markets rose sharply, linked to online activity and business opportunities arising from Brexit, according to the PMI.
However, pressure on business capacity meant outstanding workloads increased the most in any month over the past 21 years. In order to deal with the pressures, firms increased their workforce.
“The AIB Irish Services PMI for October showed that the sector continues to register a robust expansion,” Oliver Mangan, AIB chief economist, said.
“However, cost pressures continued to build. Input price inflation rose to its highest level since late 2000. This saw prices charged to customers increase at their third quickest rate on record,” he added.
Looking forward, the 12-month outlook for business activity remained elevated last month, with 57pc of firms expecting higher workloads by October next year.
The confidence was linked to a return to normal trading conditions with the lifting of Covid restrictions, the economy adjusting to the impact of Brexit, as well as long-term investments in new products and markets.
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