PMIs Suggest Limited Pricing Power Amongst Manufacturing Firms

The Eurozone-wide manufacturing PMI was 45.7 (vs 45.6 flash, 46.1 prior). One interesting theme across the reports of the four main Eurozone economies was that input cost increases were not necessarily passed through into output charges, with competition limiting pricing power:

• In Spain, a “broad-based rise in raw material prices said to have driven up cost bases” but “firms’ own pricing power was restricted by competitive pressures and a desire to stimulate sales. Subsequently, output charges fell again in April, though only marginally”.
• Similarly in France, the “April survey data indicated an increase in input costs. Sources of price pressure included oil-based products, steel and foodstuff”. Despite this, “competitive pressures prevented firms from passing on higher costs to their clients”.
• In Italy, “April saw input prices rise for the first time since January 2023, owing to inflated raw material costs. However, firms kept selling prices broadly the same in April, with some firms discounting charges to encourage sales”.
• Germany was an exception to the above trend, with input costs falling overall (though even there “a number of firms of higher prices paid for some materials, including chemicals and non-ferrous metals”). Subsequently, output prices “showed the steepest drop since September 2009. Anecdotal evidence pointed to strong competition for new work across the breadth of the manufacturing sector”.
• Overall, while base effects may stall the disinflation in non-energy industrial goods HICP in the months ahead, anecdotal evidence from the PMIs suggests pricing power is low, which should contain any notable pick-up in NEIG inflation going forward.
• Additionally, the competitive pressures imply a compression of company profit margins, which should be reflected in the unit profits component of the GDP deflator – in line with the ECB’s central scenario from the March macroeconomic projections.