Is it sustainable for business to pass on rising costs?

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Businesses are passing on rising costs to their customers, according to a slew of data published this week, but is there a limit to consumers' spending power?

Service providers hiked charges at record rate in April read the headline on Thursday reporting the latest AIB Purchasing Managers' Index for the sector which showed that one in three firms raised their prices last month.

"We thought we were going to have the economic bounce post-Covid. We haven't seen that because of the Ukrainian war," he said."Our input costs are rising by the day." One industry forced to absorb rising costs is construction and firms working on public projects. Input costs have been rising since May 2020, driven primarily by Brexit, Covid, public health measures and now the war in Ukraine.

While the taxpayer has not had to pay the rising costs for these public projects, society might end up paying a much higher price. Grocery price inflation hit 4.7% in the 12 weeks to April 17 - its highest level since September 2013. "Retailers were absorbing costs before," according to Duncan Graham, Managing Director of Retail Excellence,"but I think as this year has gone by, it has become extremely difficult to continue to do that and they have been passing on some of those costs to consumers.

"In reality, even for necessities such as food or energy, consumers will pull back spending somewhat. So, firms will suffer from a double-whammy of higher costs and reduced sales." While food is a necessity, producers tend to meet some element of price resistance fast. The KBC Chief Economist said,"More generally, intense competition between retailers and the increasing influence of ‘own brand’ goods are also factors that make it possible for consumers to avoid extreme price hikes in many grocery areas."

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