Rapid German recovery triggering inflation bottlenecks – PMI


The German economy continued its strong recovery in July with IHS Markit’s flash composite Purchasing Managers’ Index (PMI) hitting its highest level in nearly a quarter of a century, creating inflationary bottlenecks.

That was fueled by strong demand, partly resulting from an easing of virus containment measures in Europe’s largest economy. Firms, facing capacity constraints, took on staff at an unprecedented rate, Markit said.

The flash composite PMI clocked a reading of 62.5 from 60.1 in June.

Rising input costs and output charges were feeding strong inflation, even though the actual rate of price increases was down slightly from May’s record level.

Activity in the service sector was expanding very strongly, with the services index standing at 62.2, up from 57.5, its highest level since 1997. Manufacturing growth was also robust, with the index standing at 65.6, although this was only a three-month high.

“Germany’s private sector economy remains in the fast lane to recovery,” wrote IHS Markit Associate Director Phil Smith.

He added: “Across the manufacturing sector, the picture on the demand side remains highly positive, but July’s survey suggests that output has fallen further behind new orders as supply shortages continue to constrain production growth.”