Irish manufacturing activity surged to a two-year high last month, according to the latest NCB purchasing managers' index (PMI).

The PMI climbed to 54.5, from 53.9 in the previous month. A reading above 50 indicates growth. Demand from the US was especially strong, said NCB, although trade with Europe was also brisk.

Manufacturing employment inched upwards in the month but job growth was marginal. Most firms kept their workforce at its existing size.

However, overheads rose in tandem for May, driven by spiralling oil prices, healthy demand, supply shortages and the growing power of suppliers, NCB said.

Mr Dermot O'Brien, chief economist at NCB said: "As well as nine successive months of expansion in manufacturing, the May survey marks the PMI's highest level in almost two years. Along with the better results for manufacturing activity, however, there was a sharp pick-up in both input and output price inflation in May, in part reflecting the impact of higher oil prices."

The readings on manufacturing output and new orders have not been bettered since early 2000, he said.

Manufacturing in the euro zone put in its strongest performance in more than three-and-a-half years last month as a weaker euro helped boost exports and consumer demand improved in France.