FRANKFURT, July 24 (Reuters) – Euro zone companies are struggling to raise prices for consumers already struggling with a rise in fuel costs, with fierce competition from China compounding tough market conditions, a European Central Bank survey showed on Friday.
The ECB kept interest rates on hold a day earlier, saying it was seeing little or no sign that higher fuel costs were spreading broadly to consumer prices, wages and long-term expectations. It held the door open to another increase in September.
Its quarterly exchange with 76 large companies operating in the euro area outside the financial sector confirmed that those second-round effects were still largely absent, in line with a recent Reuters analysis of management commentary.
The exchanges mainly took place between June 22 and July 1, shortly after the signing of the U.S.-Iran Memorandum of Understanding (MoU) on ending the conflict, which subsequently broke down in early July amid renewed hostilities.
Companies had raised prices by less than expected in the three months to June and were expecting a slight moderation in the current quarter, the survey showed.
Around 40% of companies contacted said that prices in their sector had increased, especially in intermediate goods and transport, which are directly affected by the price of oil and its derivatives. Prices for petrochemicals, for example, had increased by 20-30%, the ECB said.
But for businesses closer to the consumer there had been “little adjustment” so far as households remained “very price sensitive”. The price of some consumer electronics products were even falling due to cheaper imports from Asia, the ECB added.
This meant around 40% of companies were seeing their margins squeezed as higher costs were not compensated by a commensurate rise in retail prices.
“Food retailers said that higher fuel prices in the second quarter left less money for spending on other items and reinforced the tendency for consumers to shift away from branded products to private labels,” the ECB said.
“General market conditions were tough,…with Chinese manufacturers increasingly offering innovative products at low prices.”
On the upside, companies said a boom in artificial intelligence was driving business investment and spending although competitiveness concerns weighed on traditional capital expenditure.
“This was causing European manufacturing firms to increasingly focus their investments on Asia or eastern Europe rather than the euro area” the ECB said.
(Reporting by Francesco Canepa; Editing by Toby Chopra)
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