Inflationary pressures may be starting to moderate

Rates of inflation in both input and output prices hit six-month lows. Picture: Nick Bradshaw

The services part of the Irish economy continued to grow in August but at its lowest level in 17 months as rates of inflation hit a six-month low.

The AIB survey of purchasing managers working in the services industry showed the level of new business continued to increase but the rate of growth slowed for the fourth time in five months. The slower demand was partly linked to inflation and weakerUK markets.

Within the survey, the financial services sector recorded the strongest growth but still recorded the weakest expansion for 15 months. Technology, media & telecoms was the second-strongest performer and the only sector to see a faster increase than in July. 

Growth slowed in transport, tourism & leisure, but remained higher than the sector's long-run trend expansion. Business services lagged the other sectors with the slowest increase in activity in the current 18-month upturn.

More positively, the survey found rates of inflation in both input and output prices hit six-month lows, and employment continued to expand at a solid pace

"Growth in new business at Irish services firms remained strong, although it slowed for the sixth month running," AIB's Chief Economist Oliver Mangan said.

"Overall business confidence in services, though still quite positive, weakened somewhat from July reflecting concerns about rising inflation and a potential recession.

"The higher costs are being passed on to customers, but similar to input prices, the rate of increase in prices charged also fell to a six-month low. So there are some signs that inflationary pressures may be starting to moderate somewhat," he said.

The manufacturing index, published last week, saw a sharp contraction in output by factories and producers in August with the index recording its steepest drop in production since February 2021.

Overall, the Irish private sector economy, defined as the combined manufacturing and services sectors, registered relatively weak growth in August. Inflationary pressures were the weakest in seven months, but still sharp overall.