Manufacturing output costs 'slowed sharply' in June

Despite output price inflation slowing last month, costs did remain elevated and the rate of inflation was still faster than in any month prior to the Covid-19 pandemic

Higher charges for energy and transportation were the main factors pushing up cost burdens, according to the AIB Manufacturing PMI survey respondents. Picture: David Creedon

Despite ongoing high costs of raw materials used in Ireland’s manufacturing sector, buyers’ pockets were not as badly affected compared to previous months, according to a new survey.

Although inflation on input prices “is still intense",
with marked increases in energy and transportation costs, the rate of output price inflation slowed sharply to a five-month low in June, as shown in the survey carried out by AIB.

“In terms of the 12-month outlook for activity, sentiment remained positive and has been stable for the past three months. However, some firms expressed concerns about the impact of rising prices on consumer demand,” said ABI chief economist Oliver Mangan.

This new data comes from the latest AIB Ireland services purchasing managers’ index (PMI), a regularly released survey providing information on economic trends.

Despite output price inflation slowing in June, costs did remain elevated and the rate of inflation was still faster than in any month prior to the Covid-19 pandemic.

Higher charges for energy and transportation were the main factors pushing up cost burdens, according to the survey respondents. Consequently, firms increased their own selling prices rapidly.

The wholesale price of electricity used in manufacturing dropped 34% in May compared with April, but was still 48% higher than prices in May 2021, the CSO found.

Fuel prices

Yet, wholesale prices for other energy products continued to rise, according to recent figures by the CSO. Fuel wholesale prices increased by almost 9% in May compared with April’s figures, and the wholesale price of petrol was 24% higher than prices in May 2021.

Overall, wholesale prices for goods used in manufacturing increased at an annual rate of just over 7% May. In April, this annual increase was slightly over 5%.

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In addition to inflation pressures, customers were also impacted by lengthened supplier delivery times, which increased last month when compared to May.

These delays were often linked to stock shortages at vendors. Efforts to mitigate supply-chain disruption and hedge against cost increases led to a “modest” rise in stocks purchases, according to the AIB survey for the month of June.

Dip in production 

Meanwhile, new orders decreased in the sector for the first time in 16 months during June, with production also down. At the start of Q2, both were rising sharply.

This reduction in new orders ended a 15-month streak of expansion. Respondents indicated that steep inflationary pressures were the principal factor leading demand to fall.

New export orders also decreased for the first time in 16 months. The survey found that for most new business, price pressures were the main factor acting to dampen international demand.

Yet, there was somewhat of a silver lining. Due to declining new orders, there was breathing room for manufacturing firms to catch up on outstanding business. Backlogs were subsequently down for the second month in a row, and to the greatest extent since January 2021.