Input prices rise at fastest pace in 25 years

Will Green is news editor of Supply Management
3 December 2021

Input prices for services firms rose at the strongest rate in 25 years in November, according to the latest PMI.

The surge in input prices was driven by suppliers passing on higher raw material and transporation costs, higher energy costs, and escalating wage pressures.

In turn prices charged by services companies also increased at the fastest pace since the survey began in July 1996.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index dipped to 58.5 in November, slightly down on 59.1 in October and against the no-change 50 reading.

Output growth was mainly attributed to a swift recovery in client demand, linked to consumer spending, improved economic conditions and a boost from reopening. However, some survey respondents noted staff shortages and supply issues had acted as a brake on expansion.

Firms continued to indicate robust demand for staff, with employment numbers rising for the ninth consecutive month. But there was a slowdown in job creation, linked to difficulties finding candidates to fill vacancies and staff leaving for higher wages or lifestyle changes.

The degree of optimism about business activity over the coming year was the lowest for 12 months.

Duncan Brock, group director at CIPS, said: “Services provision in the UK continued to expand in November with only a small fallback in growth from October as domestic pipelines of work perked up and overseas orders piled in at the fastest rate since March 2017

“With all these reasons to be jolly, firms remained short on festive cheer. Business optimism registered at the lowest level since November 2020 as higher wages, fuel, and material costs were still giving businesses a hangover. Input prices rose to another survey record with 64% of supply chain managers paying more to keep their businesses operating, which begs the question – how long can this continue and can businesses keep up?”

Tim Moore, economics director at IHS Markit, said: “The vast majority of survey responses in November were received prior to the news of the Omicron variant, however, which has the potential to derail near-term growth prospects and add to international supply chain disruption.

“Hospitality has been a top-performing area of the UK economy in recent months and looser international travel restrictions delivered a considerable boost to export sales in November. Worryingly, the fastest-growing parts of the service sector are also the most exposed to the return of tighter pandemic restrictions, especially as we approach the crucial festive spending period.”

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