Inflation threatens the drivers of Euro area’s two speed economic recovery

Julian Harris
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GROWTH in the Eurozone remained strong in April, figures revealed yesterday, yet struggling peripheral states and stubborn inflation are casting a shadow over its economic recovery.

Prices charged for goods and services in the single currency area rose at the fastest rate since July 2008, composite purchasing managers’ indices (PMI) confirmed.

While input costs rose at a slower rate than March’s post-crisis high, they “nonetheless remain elevated”.

Inflationary pressures were hardest felt in the core powerhouse Eurozone economies. “Strong growth of demand in France and Germany is allowing service providers to hike their selling prices, while charges fell in Ireland and Spain,” said Markit, which compiles the data.

Activity and new business in the French service sector soared at rates not seen since 2000.

“Again the improvement in the job market was largely restricted to France and Germany,” said Markit’s Chris Williamson.

The Eurozone’s two-speed recovery was also evident in separate data that showed an overall one per cent fall in retail sales in March.

“There is the regional divergence between the core countries where labour markets are improving and the periphery,” said ING’s Carsten Brzeski.

In Spain unemployment claims fell 64,309 in April on the month, yet are still up by 3.1 per cent annualised.