Consumer and producer prices are surging higher in Europe, which is having a negative impact on overall private business activity. Yesterday, it was reported that producer prices posted their largest monthly increase in March in almost four years. Meanwhile, the European inflation rate has risen sharply over March and April. The price growth at both the consumer and industrial levels is a result of surging oil prices in response to the conflict in the Middle East.

• Producer prices in Europe rose by 3.4% in March over the previous month, which was the largest month increase since August 2022. In February, producer prices dropped by 0.6%, signalling a sharp reversal amid a surge in oil prices.
• March’s increase was driven by an 11.1% increase in energy prices. This was the biggest monthly increase since January 2022. Prices also increased for intermediate goods and capital goods.
• Last Thursday, a flash estimate showed Europe’s inflation rate increased to 3.0% in April from 2.6% in March.
• The weight of higher prices is having an impact on Europe’s private business activity. The S&P Global Eurozone Composite Purchasing Managers Index dropped to 48.8 in April from 50.7 in March. This marked the first contraction in 16 months.
• Services sector activity contracted amid a pullback in demand, largely in response to higher prices. Confidence in the sector also weakened in April.

The data is demonstrating the negative impact the conflict in the Middle East is having on economic conditions in Europe, along with other places around the world. The impact of higher oil prices may be felt for some time, even if the conflict ends soon. Fears of the conflict prolonging for much longer eased yesterday after it was reported Iran is considering a proposal from the US to end the conflict.

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