Output price inflation peaks amid soaring costs - Natwest

The health of the West Midlands private sector economy continued to improve in March and pointed to the strongest rate of expansion in nine months, according to the NatWest PMI^�.

Rising from 58.4 in February to 59.1, the headline Business Activity Index which measures the month-on-month change in the combined output of the region 's manufacturing and service sectors, recorded that companies linked the upturn to backlog-clearing efforts, greater sales and a rush to beat price hikes.

However, local output continued to increase at a slower pace than that seen at the UK level.

West Midlands companies signalled a further upturn in new work intakes during March, marking a three-month sequence of expansion. Despite easing from February, the upturn was marked and historically high.

Anecdotal evidence indicated that ongoing improvements in customer demand and successful marketing efforts supported sales. Growth was reportedly curbed by future uncertainty, financial market volatility and the cancellation of projects.

Amid reports of higher energy prices, supply shortages, wage pressures and the Russian invasion of Ukraine, private sector firms in the West Midlands saw another increase in their cost burdens.

Moreover, having quickened from February, the rate of inflation was the second highest since data became available in January 1997. The rise in cost burdens in the region was above that seen at the national level, with the West Midlands placed sixth in the regional rankings.

With companies experiencing substantial increases in input prices, output charges were revised higher in March as additional cost burdens were transferred to clients. Moreover, for the seventh month running, the rate of charge inflation reached a series peak (data collection started in November 1999). The West Midlands came joint-fourth out of 12 in the regional rankings for selling prices.

More jobs were created in the private sector of the West Midlands during March, as companies sought to fill vacancies and expand capacities in line with sustained improvements in demand. The rate of employment growth softened to a one-year low but remained well above trend, mostly attributed to cost-cutting efforts at some businesses and workers leaving for higher pay elsewhere.

March data indicated that private sector firms in the West Midlands remained upbeat towards the 12-month outlook for business activity. Plans to invest in advertising, strategies to expand clientele and product diversification underpinned optimism, but sentiment was dampened by supply-chain concerns inflationary pressures and the Russian invasion.

Private sector firms in the West Midlands continued to report capacity pressures in March, with outstanding business increasing for the thirteenth month in a row. Where backlogs rose, panellists cited new order growth, delayed deliveries from suppliers and staff shortages. That said, the rate of accumulation eased from February and was only marginal.

John Maude, NatWest Midlands and East Regional board, said: "The West Midlands economy sustained robust growth momentum in March, with companies scaling up output and employment in response to a strong increase in sales. However, acute price pressures somewhat restricted growth and is among the key headwinds to the outlook. The ongoing crisis following the invasion of Ukraine will likely continue to impact cost pressures.

“The latest results clearly showed the cascading effect of high inflation on the private sector, with businesses citing this as a factor curbing job creation and dampening sentiment. Soaring costs led to an unprecedented rise in local output prices, which may curtail new business in the coming months."