The euro zone's manufacturing sector expanded at its fastest pace in nearly 10 years last month but worryingly for policymakers, prices rose at their quickest rate in at least 14 years, a survey showed.
The Markit Eurozone Manufacturing Purchasing Managers' Index (PMI), which records manufacturing activity across all the major euro area economies, rose to 59.0 in February from 57.3 in January, in line with an earlier flash estimate and its highest reading since June 2000.
In an encouraging sign, growth in the region, which had previously been mainly driven by Germany's robust economic recovery, picked up in some economies on the euro zone periphery.
The euro zone manufacturing PMI output index rose to 61.4 from the previous month's 59.4, comfortably above the 50 mark that divides growth from contraction for the 19th month and its highest level since June 2000.
But the rapid expansion is coming at a cost, with the input price index leaping to 85.3 from January's 79.2 - easily its highest level since the survey began in June 1997.
The output price index also hit a record high for the survey, which was conducted February 11th-21st before oil prices spiked again last week, hitting 2.5 year highs on concerns about supply after uprisings in Libya. Commodity prices have also soared on growing demand.
"Steep increases in raw material prices may deter firms from recruiting, or drive selling prices even higher in order to protect margins. The recent uptick in oil prices will only add to firms' cost pressures," said Chris Williamson at data provider Markit.
Official data yesterday showed euro zone inflation was 2.3 per cent in January, already above the European Central Bank's 2 per cent target ceiling. However, the PMI survey suggested factories still took on workers at a rate not seen since June 2000.
The ECB has adopted an ultra-loose monetary policy to support an economy recovering from its worst recession in decades but economists expect the bank to start raising interest rates in the fourth quarter to control inflation.
Germany, Europe's largest economy, continued to drive the upturn with its manufacturing PMI notching up a 15-year survey high of 62.7, while in neighbouring France factories ramped up production compared to January.
Italy and Spain also saw an expansion in their manufacturing sectors and Markit said the recovery was becoming more widespread.
"Especially encouraging is the indication that growth is picking up in the region's periphery, led by rising exports," Mr Williamson said.
"However, domestic demand in austerity focused countries such as Spain and Ireland remains subdued, and continues to drive a wedge between the overall rate of economic expansion in the periphery relative to Germany and France."
Reuters
