Inflation continues to drive up service sector prices

The services sector showed strong but slower growth in April, according to a new survey, but prices rose at the fastest rate on record as inflation continued to put pressure on the sector.

The AIB Purchasing Managers' Index showed the fastest rise in charges in more than 20 years. It was also the second-fastest rate of input price rises on record.

The growth rate in the sector eased too as worries over the war in Ukraine and the ongoing surge in the cost of living weighed on sentiment.

The Services Business Activity Index, a headline figure that is calculated based on changes in the volume of business activity month on month, eased from the five-month high recorded in March to 61.7 last month. A figure above 50 indicates expansion in the sector.

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The sector has recorded expansion every month since March 2021, and maintained levels above the long-run survey trend level of 55.1 since April last year.

Employment up

Employment rose at a marked rate during the month, and there were further increases in activity and new business.

The index also revealed momentum in the transport, tourism and leisure sector as its recovery continued. The sector saw the fastest overall expansion, with the index at 69.2, easing from a near-record in March, while financial services and technology, media and telecoms also showed strong readings of more than 60. Business services posted the slowest growth at 56.2.

Although the rate of growth moderated compared to February and March, it remained well above the long-run survey average as the continued easing of pandemic restrictions fuelled growth. There was also stronger international demand for Irish services, driven by consumers and UK business.

Scarce resources

"The rebound in demand is putting growing pressure on operating capacity, with another significant rise in outstanding business in the month. Some firms reported a lack of resources to cope with the marked pick-up in demand. The Future Activity Index, though, remained below its long-run average as ongoing concerns around the war in Ukraine and high inflation dampened confidence about the 12-month outlook for activity," said Oliver Mangan, AIB chief economist.

“In this regard, businesses continued to experience severe upward pressure on input prices, in particular from higher wages, energy, fuel, insurance, shipping and food costs. The rate of input price inflation was the second-fastest in the 21-year history of the survey. Meantime, the prices charged by service providers rose at a record pace for the second month in a row as higher costs were passed through to customers.”