Euro-Area Services Suffer From Inflation Spooking Customers

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A steep surge in inflation in the euro area has started to take its toll on the economy, according to a survey by IHS Markit.

Growth momentum in the region’s service sector slowed markedly last month, when consumer prices jumped an annual 3.4% -- the most in 13 years. A gauge measuring hiring dropped to a four-month low.

Services have been the driving force of the economy’s recovery since wide-ranging lockdowns were lifted at the start of summer. With manufacturing hurt by a global supply squeeze that’s halting production, economic prospects are now starting to deteriorate.

Service providers are seeing a “marked cooling of demand growth, which can be less easily explained by shortages,” said Chris Williamson, an economist at IHS Markit. 

It’s “in part linked to customers being deterred by concerns over the persistence of the pandemic and by higher prices, as well as some moderation of spending after the initial reopening of the economy,” he said.

In the service sector, input costs rose in September at the fastest rate since mid-2008, while prices charged were among the highest in more than 20 years.

“The economy enters the final quarter of the year on a slowing growth trajectory,” Williamson said. “A drop in business confidence to the lowest since February adds further downside risks to the outlook.”

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