Japan’s service sector activity grows at fastest pace in 6 months

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TOKYO (Reuters) – Japan’s service sector activity grew at the fastest pace in six months in May as consumer confidence recovered further after coronavirus curbs eased, although High energy and material costs have pushed up input prices at a record rate.

The final index at the Jibun Bank Japan Services Purchasing Managers’ Index (PMI) rose to a seasonally adjusted 52.6 from the previous month’s final of 50.7, with activity well above the 50 mark that separates the contraction of the expansion.

The figure marked the fastest rate of expansion since November 2021 and was better than a seasonally adjusted flash reading of 51.7.

“Activity over the next few months is expected to be strong as outstanding levels have grown at the fastest pace since September 2019,” said Usamah Bhatti, economist at S&P Global Market Intelligence, which compiles the survey.

“That said, rising prices remained a slight drag on demand as costs rose at a record pace.”

Companies in the sector saw input prices rise for the 18th month in a row, citing a wide range of factors such as rising fuel and raw material costs.

Input price pressures are causing them to charge more for services, partly passing the higher cost on to consumers, the survey found.

The composite PMI, which is calculated using both manufacturing and services, rose to 52.3 from April’s close of 51.1 to mark the fastest pace of expansion in five months.

After experiencing a contraction in January-March, the world’s third-largest economy is set to rebound this quarter, with growth likely at 4.5% annualized as the effect of the pandemic on consumer sentiment fades.

The economy still faces risks from rising food prices and a wider range of consumer products that could weigh on household spending and supply disruptions in high-tech parts and chips that hurt manufacturers.

(Reporting by Daniel Leussink; Editing by Sam Holmes)

Copyright 2022 Thomson Reuters.

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