Worryingly for policymakers, sustained growth in orders allowed European manufacturers to pass on the costs of soaring raw materials to customers, with prices rising at their fastest rate since at least late 2002.
In Asia’s big economies, similar surveys of manufacturers showed worries that high oil prices could scupper growth were unfounded for now, even though China’s outlook was clouded by signs of disruptions to trade with Japan.
Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI), which records factory activity across all the major euro area economies, dipped to 57.5 last month from February’s near 11-year high of 59.0, marking the 18th month above the 50 mark that divides growth from contraction.
The output price index rose to its highest level since Markit began tracking it in November 2002 and, coupled with data on Thursday that showed euro zone inflation at 2.6 percent in March, will cement expectations of a rate rise next week.
“They (PMIs) are still at very robust levels and pointing to healthy growth in the industrial sector, suggesting that the euro zone recovery will continue in the near term and gain some steam,” said Ben May at Capital Economics.
A pair of China PMIs showed factories were growing moderately rather than booming, and while some economists warned of a continued slowdown, few thought slowing production would slam the brakes on the world’s second largest economy.
“It’s growing at a slow and steady speed as tighter monetary policy impacts,” said Stephen Green, an economist at Standard Chartered in Shanghai. “I’m not overly worried about growth.”
China’s official purchasing managers’ index (PMI), compiled by the government, rose to 53.4 in March from a six-month low of 52.2. A comparable survey published by HSBC steadied near seven-month lows at 51.8.
In India, the mood among manufacturers was more upbeat. An HSBC-sponsored PMI there compiled from a survey of around 500 firms held steady at a four-month high of 57.9.
British manufacturing growth weakened from a survey record high the prior month after the inflow of orders slowed sharply but the prices charged index hit a survey record, showing manufacturers’ pricing power is rising.
The surveys suggested policymakers’ main focus in months ahead will be on inflation concerns.
The European Central Bank has already signalled it intends to raise interest rates next week from a record low of 1.0 percent and the Bank of England, facing inflation more than double its target, may follow suit as soon as May.
“By showing ongoing robust euro zone manufacturing activity and rising price pressures, the PMI reinforces belief that the ECB will pull the interest rate trigger next Thursday and raise interest rates from 1 percent to 1.25 percent,” said Howard Archer at IHS Global Insight.
Worried that rising prices could stir social unrest, China’s central bank has steadily tightened policy since October, when it declared that fighting inflation was a priority.
The PMI surveys suggest this may be working.
While prices climbed there, they did so at a slower pace and most analysts expect China to raise interest rates at least once more this year. A government researcher said on Friday a rate rise could happen as soon as this month.
“Quantitative tightening is working. So as long as Beijing keeps tightening for another three to four months, inflation should start to slow meaningfully in the second half of 2011,” said Qu Hongbin, HSBC’s chief economist in China.
In India, price pressures appeared to be more stubborn, despite eight interest rate increases in the past year and the HSBC survey showed the input price index in March was at its highest since the poll was started in April 2005.
