Record rise in input prices delivers a sting in the tail for manufacturing- EY ITEM Club comments

01 February 2017

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  • 2017 begins on a strong note for manufacturers…
  • …with the PMI remaining close to a 30-month high
  • But a record rise in input prices delivers a sting in the tail

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

“The makers appear to have begun 2017 on a similarly strong note as they ended 2016. Granted, January’s PMI dipped slightly to 55.9 from the 56.1 seen in the previous month. But this was well above both the average of 52.4 recorded in 2016 and even further above the survey’s long-run norm of 51.5.

“Many of the details of January’s survey were also reassuring. Output rose at the fastest rate since May 2014 and new orders and employment were also up. The domestic market accounted for the bulk of growth – while export orders continued to rise, the pace of expansion saw a noticeable slowdown.

“But there were some ominous developments amongst signs of a sector in good fettle. The survey’s measure of input price inflation rose to the highest since CIPS began collecting responses in 1992. Firms attributed this to the weak pound and rising commodity prices. January’s pick-up in output prices was also close to a record. The acceleration in consumer price inflation presaged by these moves suggests that manufacturers will face an increasingly tough year as 2017 progresses.”