Currency switch blamed for record price rises in Europe

14 February 2002
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14 February 2002 | Robin Parker

Purchasers across Europe faced steep price hikes as suppliers switched to the euro, according to latest figures.

Input prices rose to their highest level for six months. The increase of 4.1 points to 51.3 in the Reuters Eurozone Input Prices index, above the 50 mark that indicates no change, was the largest monthly rise in the survey's 43-month history.

Prices paid for labour, goods and services expanded most rapidly, up by 5.4 to 57.7. Prices charged by services firms rose for the first time in six months.

Luke Thompson, senior analyst at NTC Research, which compiles the reports, said suppliers and purchasers were likely to have tried to use the switch to their benefit.

"It's likely to be a temporary rise cause by conversion to the euro," he said. "Most businesses will have rounded up prices to make figures easier for people to understand and use."

Prices also rose in the CIPS/NTC Research UK purchasing managers' indices, but this was caused by seasonal variations such as wage reviews and new price lists from suppliers rather than the euro, said Thompson.

After four months of contraction, the January services PMI shot up to 51.4, above the 50 mark that indicates no change.

Optimism for prospects in the coming year reached a seven-month high, with more than half of the purchasing managers polled predicting business growth in the coming year.

However, the employment index of 46.8 marked the sharpest rate of contraction in the survey's history, as firms made redundancies to downsize and reduce costs.

"It's a reflection of the fact that during the second half of 2001, the service sector has been feeling the squeeze economically," Thompson said.

Despite marginal growth, manufacturing remained in decline and demand was met largely from reserves of finished goods and existing stocks, keeping purchasing activity and production down. Suppliers' pricing power was dented by the shortening of lead times for the fifth consecutive month.

Although January saw the strongest growth in consumer demand for six months, the Confederation of British Industry warned that retail spending could fall sharply this month.

There were signs of a manufacturing recovery in the US, where the Institute for Supply Management's index of 49.9 marks the lowest measurable level of decline.

SMfeb2002

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