Press release

2 Mar 2022 London, GB

Manufacturers face little let-up in cost pressures – EY ITEM Club comments

While February’s manufacturing PMI signalled robust growth in the sector, cost pressures showed limited signs of abating. And the recent further increase in energy and commodity prices will intensify those pressures

Related topics Growth
  • While February’s manufacturing PMI signalled robust growth in the sector, cost pressures showed limited signs of abating. And the recent further increase in energy and commodity prices will intensify those pressures. 
  • Softer demand for goods as consumer spending re-orientates towards services means not all forces affecting prices are pointing upwards. But the PMI reinforces concerns that high inflation will prove more stubborn than previously hoped.  

Martin Beck, chief economic advisor to the EY ITEM Club, says: 

“February’s manufacturing PMI of 58.0 was a three-month high and up from the previous month’s 57.3. The details of the index showed the strongest rise in output since July 2021, while new orders growth also picked up pace. The increase in the headline PMI would have been stronger but for an easing of supply frictions – the IHS Markit/CIPS survey’s measure of delivery times lengthened to the smallest extent since November 2020.

“However, evidence of a better-functioning supply-side did not translate into much of a let-up in cost pressures faced by manufacturers. The survey’s measures of inflation in input costs and output prices in February were both close to the highest since the respective indices began in 1998. Granted, there was some easing from recent record highs. But rising commodity prices will push up the price of inputs used by firms further, as well as affecting demand, if higher costs are passed onto consumers via price increases.

“For sure, a post-pandemic shift in consumer spending from goods to services should be disinflationary, by taking some of the heat out of demand for goods. But CPI inflation now looks likely to peak at around 8% in April and stay higher for longer than the EY ITEM Club had previously expected. And the added squeeze on household spending power means that expectations for near-term growth in GDP have also been affected.”