Eurozone Services Activity Hits 6-Month High

A measure of growth in the Eurozone service sector hit a 6-month high in January of 57.9, compared with 57.2 in December, according to RBS/NTC, fueling speculation that European interest rates could see a further rise during 2007.

The results come as part of a survey by RBS/NTC which also reveals that wage inflation helped to push the price index almost 3 points to the 8-month high at 60.3, while prices charged hit a 7-month high at 54.0 from 52.7 in December. The strong wage growth indication could add ammunition to unions’ negotiations regarding further pay increases for workers.

The increase in the Eurozone employment index to 54.3 from 53.7 was the fourth-highest level since early 2001.

The strong results have confounded many analysts, who expected the services PMI to dip to 56.9 according to Reuters.

"The (European Central Bank) will be concerned by the sharp rise in both the input prices and prices charged indices for the Eurozone service sector in January," Howard Archer, economist at Global Insight, told Reuters. "While the VAT hike in Germany contributed significantly to the rise in the prices charged index, this was by no means the only factor, as prices rose across the region. Reports of improved pricing power among service providers and higher wages will be particularly worrying for the ECB."