European manufacturers are passing higher input costs on to their customers, sending eurozone inflation to its highest level for almost a year as shortages of materials and soaring shipping costs disrupt supply chains. Efforts to cushion rising costs are driven by the sentiment that supply chain bottlenecks are unlikely to ease in the short term, according to industry and shipping executives. More expensive manufactured goods are in turn fuelling expectations of a further surge in inflation, which Germany’s central bank is already warning will reach its highest level since the 2008 financial crisis by the end of this year.
“As we go into the recovery in the second half of this year, this inflation at the factory gate will increasingly be passed through to the consumer,” said Katharina Utermöhl, economist at Allianz. Eurostat data released on Tuesday showed overall eurozone inflation jumped to 0.9 percent in January, breaking a five-month spell of falling prices. Higher prices for non-energy industrial goods were the biggest factor, contributing more than 40 percent of the year-on-year increase in inflation.
Input prices for eurozone manufacturers rose this month at a rate not seen for almost 10 years, according to the closely watched IHS Markit purchasing manager survey. The impact was felt hardest in the car, chemicals, metal and mining, resources and basic materials sectors.