Factory input costs leapt across the globe in February, the latest sign of rising inflationary pressures, while U.S. and euro zone manufacturing grew at their fastest pace in years, surveys showed.
British manufacturing also grew strongly, at its fastest in nearly two decades, and Indian factory growth accelerated. But in China, where authorities have raised rates and bank reserve requirements several times since last year, factory growth slipped to its slowest pace in six months.
Overall, the February purchasing managers’ indexes provide the latest evidence of growing inflationary pressure from a sharp rise in commodity prices. Crude oil prices hit 2-1/2 year highs last week on supply concerns after uprisings in Libya.
“With the latest surge in commodity prices yet to fully feed through into consumer prices, inflation could well climb further in the next few months,” said Martin van Vliet at ING.
The output price index in the 17-nation euro zone hit a record high for the survey, which was conducted Feb. 11-21 before oil prices spiked again last week.
The head of the International Monetary Fund, Dominique Strauss-Kahn, warned on Monday that global economic growth could suffer if the rise in oil prices continued for a long period.
U.S. Federal Reserve Chairman Ben Bernanke argued the recent surge in oil prices is still unlikely to have a big impact on the U.S. economy. A sustained rise in prices, however, could lead to weaker growth and higher inflation, he said.
“The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation,” Bernanke told the U.S. Senate Banking Committee.
The U.S. manufacturing sector grew at its fastest rate since May 2004 in February, slightly above analysts’ expectations, an industry report showed on Tuesday. Prices paid by manufacturers also rose, but less than expected .
Official euro zone data also showed consumer prices rose 2.4 percent year-on-year last month, considerably above the European Central Bank’s target of just below two percent.
The European Commission upped its inflation forecasts for the bloc, now expecting prices to rise 2.2 percent this year compared to their previous 1.8 percent forecast.
The ECB is not expected to exit from the ultra-loose monetary policy it adopted in the depths of the financial crisis when it meets on Thursday but economists expect an interest rate hike by the fourth quarter of this year.
“February’s flash euro zone CPI figures will do little to alter the ECB’s recent rather more hawkish stance ahead of Thursday’s Council meeting and press conference,” said Jonathan Loynes, chief European economist at Capital Economics.
The latest European PMIs also showed that manufacturing growth across the euro zone, which had previously been mainly driven by Germany’s robust economic recovery, picked up in some economies on the periphery. In debt-stricken Ireland, manufacturing activity hit an 11-year high.
China PMIs showed that manufacturing growth slipped to its slowest pace in at least six months, a sign that the government’s campaign to tame inflation was having an effect.
But gauges of factory input prices still hit three-month highs in both China’s official PMI and a private-sector PMI sponsored by HSBC.
Many of China’s businesses were shut or running at half speed in the first part of February as China celebrated the Lunar New Year holiday, making it difficult to draw firm conclusions, though the PMIs are on a mild downward trend.
Since October, when inflation began to pick up, China has raised banks’ required reserve levels five times to a record high, increased interest rates three times, and also ordered banks to lend less.
Lending by Chinese banks remains excessively fast, topping the “extreme upper limit” set by regulators, the country’s banking chief said at an internal meeting at the start of this year, a source told Reuters on Tuesday.
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