Euro-area factory costs rising at fastest pace in a decade

Euro-area manufacturers are reporting the steepest increases in their input costs in almost a decade as the coronavirus disrupts supplies, and are passing at least some of that burden onto customers.

Rising demand for goods is running into virus restrictions that are causing delivery delays and pushing up prices for raw materials and components, according to an IHS Markit survey.

Manufacturers said delivery times worsened last month at the second-fastest pace since records started 24 years ago. Yet firms also stepped up purchasing activity by the most in more than three years, running down inventories to cope. Stockpiles fell for a 25th month.

A similar survey in Switzerland showed prices for goods imported from overseas rose due to higher transport costs, along with a broad rise in commodities, electronics components prices.

While the euro area looks set for a first-quarter economic contraction amid a slow vaccine rollout and extended coronavirus restrictions, confidence surveys have shown optimism that the recovery is on its way. That’s bolstering demand and allowing factories to pass on some of their higher cost.

Output prices climbed at the fastest pace since April 2018, with IHS Markit economist Chris Williamson saying the trend suggests “further increases in consumer-price inflation in coming months, at least until supply and demand come back into balance.”

Earlier, reports from Asia showed manufacturing engines grinding ahead, with most continuing to expand during the volatile Lunar New Year holiday period. Japan recorded its strongest reading since 2018, while India, Indonesia, Philippines and Vietnam all remained above the 50 level that separates expansion from contraction.