Costs for Asian and European manufacturers jumped in January as firms ramped up production, surveys showed on Tuesday, the latest evidence of growing pressure on global inflation from food and fuel prices.
Inflation has rapidly hurtled to the top of the policy agenda around the globe, but in many cases it is not clear if rises in the cost of raw materials will lead to consumer price hikes that would force central banks to up interest rates soon.
Purchasing managers' indexes (PMIs) suggested both that the economic recovery was gaining momentum in Europe -- boosting demand for goods -- and also that firms have managed to pass on some of their increased costs to their customers.
For the 17-nation euro zone bloc, the PMI input price gauge jumped to its highest since the survey began in 1997, while across the channel in Britain there was substantial growth in both input costs and factory gate prices.
The obvious culprits are food and energy prices, said Mark Miller, global macroeconomist at Lloyds Banking Group. The increases in commodity prices that we have seen very recently are likely to persist.
Rising food and fuel prices have already hit poorer countries and are one of the factors behind massive anti-government protests in Egypt and in Tunisia, whose president was ousted last month.
The European data, compiled by Markit from comprehensive surveys of private sector business, are likely to add to speculation that central banks will soon have to raise the record low interest rates held in place since the global financial crisis set in.
Input costs for Chinese manufacturers also rebounded in January, according to the official PMI. The comparable input price index for India rose for a seventh straight month, while factory gate prices were up for the fourth month in a row.
This provides a further reason to think that headline inflation is likely to pick up in the next few months, said Brian Jackson, economist at Royal Bank of Canada in Hong Kong.
In South Korea, official data showed inflation rose above the central bank target to hit a three-month high of 4.1 percent. Manufacturing input prices as measured by the PMI soared to a nearly two-year high, boosting the case for an interest rate hike next week, which would mark a rare back-to-back streak.
In the euro zone, the European Central Bank is expected to leave rates on hold at their record low of 1.0 percent when it meets on Thursday. But there is growing speculation that the Governing Council will act sooner rather than later to quell rising prices.
Euro zone consumer prices rose 2.4 percent in January, well above the ECB's preferred two percent ceiling, data showed on Monday. And British inflation rose to 3.7 percent in December, almost twice the Bank of England's target.
While the world economy has begun improving it is beset by problems such as high unemployment and rising prices which could fuel crippling trade protectionism or even lead to war within nations, the head of the International Monetary Fund warned on Tuesday.
Manufacturing activity in the euro zone accelerated in January, suggesting the sector is regaining momentum across the region, with the notable exception of battered Greece, while British growth was the fastest since records began in 1992.
But in China, tighter policy began to bite, producing a bigger-than-expected slowdown in manufacturing growth, though the country's factories were still well into expansionary territory.
China's official PMI fell to a five-month low in January, the China Federation of Logistics and Purchasing said but analysts warned the results were likely distorted by a closure of factories ahead of China's Lunar New Year.
A separate PMI sponsored by HSBC pointed in the opposite direction, edging up in January and with a slight easing in input price inflation.
Taken together, the two surveys painted a picture of sticky inflation and a moderate slowdown in the world's second-largest economy after 10.3 percent growth last year, which was generating an inflation rate of 4.6 percent in December.
This will only reinforce the overriding theme of policy tightening to contain inflationary pressures, said Charlie Lay, economist at Forecast PTE in Singapore.
So far, Chinese officials have moved tentatively on rates and the currency, and instead leaned heavily on administrative measures, raising banks' reserve requirements seven times since the start of last year and capping their lending, while also cracking down on property speculation.
The India PMI also edged up in January.
The Reserve Bank of India raised interest rates last week by a quarter of a percentage point to clamp down on resurgent inflation and warned of persistently higher food prices unless steps are taken to boost supplies.
The central bank has already raised policy rates seven times since March, saying the balance of risks had tilted toward stronger inflation and it was ready to respond if price pressures increased.
(Additional reporting by Yati Himatsingka in Bangalore, Kevin Yao and Yoo Choonsik in Seoul; Simon Rabinovitch in Beijing; Editing by Ken Wills and Vidya Ranganathan; editing by Patrick Graham)