Red Sea crisis leads to first manufacturing price hike in a year

AIB purchasing managers survey finds hiring and output were well ahead of previous months

Manufacturers have raised their prices for the first time in almost a year on the back of higher shipping costs due to vessel attacks in the Red Sea.

AIB’s latest purchasing managers survey found manufacturers are contending with longer delivery times and higher input costs. Shipping firms have had to take longer, more costly routes to avoid skirmishes with Iran-backed Houthi rebels, who have been attacking cargo ships in the Gulf of Aden and Red Sea since November, an offshoot of the wider crisis in the Middle East.

The Red Sea, via the Suez Canal, is the main artery for getting goods from Asia to Europe. Freight forwarders Woodland group said this week that retailers have been increasing their stocks “as longer journeys become the new supply chain norm”.

But there is good news for the sector as manufacturing activity expanded for the first time in six months in February and is growing at its fastest rate in almost two years, AIB said.

AIB’s purchasing managers’ index (PMI) index came in at 52.2 in February, from 49.5 in January. Any reading over 50 indicates an increase in activity, and below 50 shows a contraction.

The boost is coming from domestic demand, which was up significantly on January, though export orders were down on the back of softer demand from UK firms.

While hiring and output were well ahead of previous months, costs are rising at the fastest rate in almost a year, leading manufacturers to raise prices for the first time since April 2023.

Manufacturers are now slightly less upbeat about the future than they were in January, with 39pc predicting an increase in production over the year ahead and 8pc expecting a fall.

AIB chief economist David McNamara said there was a “sharp rise in output and employment” and that the Irish results were well ahead of the eurozone and UK, where manufacturing is still contracting.

But he highlighted concerns about the future.

“In an otherwise positive survey, a concerning trend is the continued disruption to shipping routes in the Red Sea, to which respondents attributed longer delivery times and higher input prices in February. This also drove the first increase in output prices since April 2023.

“Manufacturers remained broadly optimistic about the outlook for the year ahead as firms linked this optimism to expansion plans and stronger client demand. However, the business expectations index still eased to its lowest level since April 2023 due to ongoing economic uncertainty.”

Reporting On:independent.ie