MACRO: Record PMIs spark even more inflation concerns

• Flash PMIs from the US climbed to record levels

• Chief Business Economist at IHS Markit warns about inflation

As investors are still trying to assess the scale of the economic recovery, markets were looking forward to flash PMI indices from the United States for the month of May. The data came in well above market expectations as the figures rose at unprecedented pace. Manufacturing PMI climbed to 61.5 (prior: 60.5) and topped estimates of 60.2. However, services PMI turned out to be even more staggering - the index jumped from 64.7 in April to 70.1 May, well above expected 64.3! In fact, both indices climbed to highest levels since the start of data collection, and therefore hopes for rapid economic recovery in the US may be justified. IHS Markit mentioned that this growth would have been even stronger if businesses were not constrained by supply shortages and difficulties filling vacancies.

“With businesses optimistic about the outlook, backlogs of orders rising sharply and demand continuing to pick up both at home and in export markets, the scene is set for strong economic growth to persist through the summer,” said Chris Williamson, Chief Business Economist at IHS Markit

Despite stellar PMI indices, there is one thing that could make investors anxious, namely inflation fears. As inflation has become a major theme on global financial markets these days, Chief Business Economist at IHS Markit addressed the issue in today’s report: 

“The May survey also brings further concerns in relation to inflation, however, as the growth surge continued to result in ever-higher prices. Average selling prices for goods and services are both rising at unprecedented rates, which will feed through to higher consumer inflation in coming months,” he commented. 

As a matter of fact, a further surge in manufacturing purchase prices was also mentioned in today’s German PMI report. Moreover, it rose at the fastest pace since… the start of data collection in 1996. This shows that inflation concerns are getting really alarming not only in the US, but also in Europe. As FOMC members maintain that inflation is transitory, markets are set to pay even more attention to upcoming US inflation reports and FOMC meetings.

Inflationary pressures are accelerating not only in the US, but also in Europe. Central bankers, who claim that elevated inflation is transitory, will certainly be on watch in the upcoming months. Source: Bloomberg (via: ZeroHedge)