Service sector continues to pass on costs to consumers

the service industry remained in expansion territory last month due to demand buoyancy which led to a strong increase in new business.

Service businesses continued to pass on operating costs to consumers through higher selling prices last month as inflation rose to 4.9% in August, compared to 4.6% the previous month.

Inflation has cooled from levels recorded last year but Irish service business raised their selling prices at a faster pace midway through the August quarter despite input costs easing for the second month in a row to the slowest in 28 months, according to the a leading survey.

The AIB purchasing managers index for the service industry showed that respondents to the survey said they were still battling high operational costs and wage pressures which drove higher selling prices.

“Input prices continued to experience significant upward pressure, most notably from rising labour costs and fuel bills,” said Oliver Mangan, AIB chief economist.

However, the service industry remained in expansion territory last month due to demand buoyancy which led to a strong increase in new business.

The technology, media and telecoms sectors grew, while transport, tourism and leisure businesses contracted for a second consecutive month.

The survey registered a reading of 55 for the industry. Anything above 50 is considered expansion and any number below it is seen as contraction.

The flash Services PMIs fell into contraction territory in August in the eurozone and UK, with the indices declining below the 50 level to 48.3 and 48.7, respectively. 

This may cause concern for European Central Bank hawks who are considering another interest rate hike next week.