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Eurozone services PMI and inflation risks worry BNY strategist

BNY flags that services PMI input prices remain elevated, with the input versus charged price gap at its widest in nearly three years, suggesting margin pressure and stagflation risks.

Reported · Written up by our desk · Central Banks

BNY strategist Geoff Yu said the lack of further Fed tightening has eased global financial conditions, partially offsetting the European Central Bank's tightening, but warned euro area inflation dynamics are still distinct from the United States.

The note points to rising services PMIs alongside elevated input costs and margin pressure as factors that could weaken a sustainable demand recovery, raising stagflation risks for the euro area.

BNY also argues that rates markets may be slow to remove the near 45bp priced in additional tightening by year end until there is clearer visibility on the conflict, noting that falling prices for dollar-priced commodities could add negative margin pass-through.

Looking at the Eurozone PMI details, the strategist said ceasefire implementation has not changed the picture for services input prices, which remained the highest since early 2024, while the gap between input and charged prices is at the widest level in nearly three years.

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