Services sector growing fast but costs increase 

AIB index signalled the fastest pace of expansion in the sector since September 2023

Input cost inflation and charge inflation are at 10- and 12-month highs, respectively. 

The services sector saw the fastest rate of growth in five months during February, but inflationary pressures continued to add to input costs, the latest AIB Services Purchasing Managers Index (PMI) shows.

The index is a single-figure indicator of the performance of the services sector with any number greater than 50.0 indicating an overall improvement in the sector. The index is calculated from a question to business-owners that asks about changes in the volume of business activity compared with one month previously.

The February index came in at 54.4, up from 50.5 in January, and signalled the fastest pace of expansion in the sector since September 2023.

All of the four sub-sectors reported improvements. The PMI for financial services stood at 57.6, ahead of the transport, tourism and leisure sector at 53.7, the technology, media and telecoms sector at 53.7, and business services at 51.3.

According to AIB, companies mentioned a stronger increase in European demand as new export business rose at the fastest pace in six months.

This strong increase in new contracts was reflected in the rise in outstanding business.

Overall confidence in the sector was the strongest since February last year.

AIB chief economist David McNamara said business sentiment about the prospects for activity over the coming 12 months also improved, helped by increasing expectations of economic recovery, lower interest rates, and new product developments.

Job creation also saw the sharpest increase since last June.

The improved performance of the sector was, however, accompanied by rising price pressures. Input price and charge inflation were at 10- and 12-month highs, respectively.