Fall in oil price eases pressure on business costs

24 May 2011

24 May 2011 | Lindsay Clark

Input costs across the eurozone are continuing to rise, but at a slower rate because of a drop in the price of oil, according to a survey of European buyers.

The Flash Eurozone Composite Output Index - a Purchasing Managers’ Index published by Markit - stood at 55.4 in May, indicating growth but at a slower pace than the 57.8 recorded in April. A figure of 50 indicates no change.

Although business activity slowed, companies also found cost inflation eased. Average prices charged for goods and services, such as fuel, rose for the tenth month running, but the rate of inflation cooled from the near-record high seen in April, slipping to its lowest figure in four months.

Chris Williamson, chief economist at Markit, said: “The Eurozone PMI continued to show robust expansion, but the rate of increase showed the sharpest slowing since just after the collapse of Lehman’s in late 2008. It is not clear the extent to which this reflects temporary factors such as the timing of Easter and disruptions to supply chains emanating from the earthquake in Japan, but a deterioration in business confidence in the service sector to the weakest since July 2009 suggests that a more fundamental slowing in the pace of economic growth is occurring.

“There was good news on the inflation front, with the recent fall in oil and other commodity prices feeding through to help slow the rate of inflation of both companies’ costs and their selling prices,” he added.

The Flash Eurozone PMI report is based on around 85 per cent of usual monthly replies, and gives an early indication of trends.

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