Irish service firms keep growing in October, but inflation worries cloud the outlook

what happened

Ireland's services sector kept expanding in October for a fifth consecutive month, according to a survey reported by Reuters. The AIB Ireland Services Business Activity Index, produced by S&P Global, moved up to 54.3 from 54.1 in September, comfortably above the 50 threshold that marks growth. Over the past five-plus years the index has dipped below that line only once, back in April of this year.

New orders kept rising for a sixth month, though more slowly than in September. Foreign demand was softer: export orders stalled, as strength in technology, media, telecoms and tourism was cancelled out by weakness elsewhere. Hiring picked up for a second month running, but only modestly and below the long-run average of the survey.

Price pressures intensified. Input cost inflation reached a five-month peak, the third-fastest pace since February 2023, fed by fuel, energy, wages and supply shortages. Output prices rose at their quickest rate since February 2023, close to a four-year high, as companies passed costs on to customers. Expectations for the next 12 months deteriorated sharply: the future activity gauge fell to a six-month low and posted its steepest monthly drop since March 2022. Respondents linked the gloom to high inflation and economic uncertainty, according to AIB chief economist David McNamara.

why it matters

For markets, the combination matters: current activity is holding up, yet company expectations have weakened sharply as price growth accelerates. It signals that inflation pressure is beginning to weigh on business sentiment, which is relevant for the euro and for rate expectations across the euro area.

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