Euro-Area Economy Opens 2018 With Best Growth in Almost 12 Years

  • Composite PMI jumps to 58.6 from 58.1, exceeding estimates
  • Firms’ pricing power improves amid strengthening demand

Portuguese Finance Minister Worried About Protectionist Policies

The euro-area economy strengthened further at the start of 2018, bringing with it signs of a long-awaited pickup in inflation.

The improvement lifted IHS Markit’s Purchasing Managers’ Index to 58.6 from 58.1 in December, higher than economists had forecast. The gauge is now at a level suggesting quarterly economic growth of close to 1 percent, according to the report.

Rising output prices will reinforce the position of the more hawkish members of the European Central Bank’s Governing Council. They’ve already been out in force this year, arguing that the improved economic backdrop has put inflation on a path toward 2 percent and justifies an unwinding of unprecedented stimulus.

The Governing Council holds its first policy meeting of the year on Thursday. While no change in interest rates or quantitative easing is predicted this week, officials are widely expected to phase out asset purchases by the end of the year.

According to IHS Markit, some of the latest surge in prices relates to higher costs for oil and raw materials, but there’s also a sense that underlying inflation may finally start to take off.

“Pricing power more generally has improved as demand outstrips supply for many goods, leading to a sellers’ market,” said Chris Williamson, chief business economist at IHS Markit.

There were also signs of inflation in the PMI for Germany, where factories jacked up prices at a near-record pace. The headline index showed Europe’s largest economy maintained its momentum at the start of 2018. France recorded a similarly upbeat performance.

— With assistance by Mark Evans

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