Record inflation drives price rises in manufacturing

There were record inflationary pressures in the Irish manufacturing sector in March, as both input and output prices increased at the fastest rates in the near-24 year survey history, according to the latest PMI data from AIB.

Although output and new work rose more quickly, linked to advance customer orders, the 12-month outlook for production weakened notably since February as firms warned of the impact of the war in Ukraine on both demand and supply.

PMI is a composite single-figure indicator of manufacturing performance. It is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases. Any figure greater than 50 indicates overall improvement of the sector.

The PMI rose from February’s 11-month low of 57.8 to 59.4 in March, signalling a marked overall improvement in manufacturing business conditions in Ireland. Conditions have strengthened every month since October 2020.

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Moreover, the latest figure was the joint-ninth highest in nearly 24 years of data collection, with all these readings set during the last 12 months. That said, the elevated level of the PMI continued to be heavily influenced by the suppliers’ delivery times component.

The rise in the headline figure in March was mainly driven by the new orders, output and employment components, which each having similar positive directional influences of between 0.6-0.7 points.

Stocks of purchases boosted the PMI by 0.1 points, while suppliers’ delivery times had a negative contribution (-0.3 points).

March survey data signalled the strongest inflationary pressures in the manufacturing sector since the survey began in 1998.

Both input and output prices increased at record rates, with costs driven by raw materials, components, energy, fuel and transport charges and general market volatility and uncertainty due to the war in Ukraine. About 88 per cent of manufacturers reported higher input prices.

Demand for Irish manufactured goods strengthened as new orders rose at the fastest rate since August 2021. Moreover, the pace of growth was among the highest on record.

That said, demand partly reflected advance ordering by customers due to ongoing supply chain uncertainty and fears over rising prices, exacerbated by the Russian invasion of Ukraine.

New export growth moderated compared with February as some firms reported increased caution among international customers. Output growth accelerated to a three-month high.

Firms linked higher production to improving demand, customer stockpiling and some easing of pressure on supply chains.

Although well above the long-run survey average, the rate of expansion was slightly below the trend for the current 13-month sequence of growth. Employment rose at the strongest rate in seven months, boosting production capacity.

Production continued to rise more slowly than incoming new work, partly reflecting supply delays and staff shortages due to Covid.

Backlogs increased for the thirteenth month running, albeit at a weaker rate than in February as there was some evidence of reduced pressure on supply chains.

Suppliers’ delivery times lengthened markedly, albeit to the weakest extent since December 2020. Firms continued to sell direct from stock to meet demand, with post-production inventories declining for the ninth consecutive month.

Purchasing activity was boosted as firms sought to secure stocks due to expected delays and price increases. That said, the increases in buying activity and input stocks were both slower than recent trends.