Companies are raising prices at the fastest rate in more than three years, even as output contracts.
Johanna Treeck
“The eurozone is facing deepening economic woes from the war in the Middle East, presenting a major headache for policymakers,” said Chris Williamson, chief business economist at S&P Global. “Increasingly widespread supply shortages meanwhile threaten to dampen growth further while adding upward pressure to prices in the coming weeks.”
Separate PMI readings for Germany and France — the region’s two largest economies — also showed private-sector activity contracting in April, while inflationary pressures continued to build.
The eurozone survey showed that companies raised their prices at the fastest rate in 37 months in April, while their own input prices rose the most since the end of 2022.
This combination of weak growth and persistent price pressures — stagflation — poses a particularly acute dilemma for the European Central Bank. Efforts to tame inflation by raising interest rates would risk deepening the economic slowdown.
“The ECB once again has the unenviable task of deciding whether to raise interest rates in the face of the worrying inflation picture, or whether this price spike will prove temporary and its focus should instead be on preventing the economy from sliding into a deeper downturn,” Williamson said.
Faced with that trade-off, ECB policymakers have signalled they are unlikely to take any decision when they next meet on April 30.
“No one really knows how long the situation will last, and by next week I doubt we’ll have much more clarity,” ECB Chief Economist Philip Lane said on a panel in Frankfurt on Wednesday, referring to the April 29-30 meeting. “Until we have a better sense of how long this war will continue, it’s very hard to judge whether this is a temporary phase or a more persistent shock to the European economy.”
