Photographer: Krisztian Bocsi/Bloomberg

German Optimism at Factories Puts Spark Into Inflation Outlook

  • Composite Purchasing Managers’ Index slips to 58.8 from 58.9
  • ECB prepares for first policy meeting of 2018 on Thursday

German manufacturers raised prices at one of the fastest paces on record at the start of 2018, an expression of confidence that Europe’s largest economy is in for another year of solid growth. 

The pickup in factory-gate inflation reflects a more optimistic outlook as well as a surge in input costs, according to a report by IHS Markit on Wednesday. Job creation in the private sector, which also includes services, gathered pace in January as orders and backlogs of work continued to grow. 

Germany’s economy has proven resilient despite Chancellor Angela Merkel’s failure so far to form a government and blows from protectionist policies and trade uncertainties. Output expanded 2.2 percent in 2017, the most in six years, and the Bundesbank predicts momentum will be maintained into this year. 

Rising price pressures will come as good news for the European Central Bank, which is holding its first policy meeting of the year on Thursday. Euro-area inflation is only slowly heading toward the institution’s goal of just under 2 percent. 

In Germany, “undeterred by ongoing political uncertainty and rising cost pressures, firms showed strong optimism toward the outlook,” said Phil Smith, an economist at IHS Markit. 

The headline composite Purchasing Managers’ Index slipped to 58.8 from 58.9 in December, the report showed. A gauge for manufacturing fell to a three-month low and a measure for services reached a seven-year high.

— With assistance by Mark Evans

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