LONDON (Reuters) – The euro zone economic recovery rebounded sharply this month as an easing of coronavirus restrictions gave a boost to the bloc’s dominant service industry, a survey showed, but consumers faced prices rising at a record rate.

As the Omicron coronavirus variant swept across Europe some governments reimposed measures to contain its spread, but with large swathes of the population now vaccinated many of those measures have been eased.

IHS Markit’s Flash Composite Purchasing Managers’ Index, seen as guide to overall economic health, jumped to a five-month high of 55.8 in February from 52.3 in January, significantly above the median 52.7 forecast in a Reuters poll.

“The euro zone economy regained momentum in February as an easing of virus-fighting restrictions led to renewed demand for many consumer services, such as travel, tourism and recreation, and helped alleviate supply bottlenecks,” said Chris Williamson, chief business economist at IHS Markit.

A PMI for the service industry soared to 55.8 from 51.1, a five-month high and above all forecasts in a Reuters poll that had predicted only a modest rise to 52.0. Anything above 50 indicates growth.

Factories had another solid month and the manufacturing PMI only dipped from January’s 58.7 – where the Reuters poll predicted it would hold – coming in at 58.4. An index measuring output, which feeds into the composite PMI nudged up to 55.6 from 55.4.

Activity could have been faster but lingering supply chain bottlenecks and booming demand meant factories were unable to keep up and the backlogs of work index rose to 58.7 from 56.9.

With the economy reopening, and amid hopes the worst of the pandemic is over, optimism improved across the board. The services business expectations index climbed to 68.7 from 67.2.

The economic rebound was despite overall prices charged by firms rising at the fastest rate since IHS Markit began collecting the data in late 2002. The composite output prices index climbed to 62.7 from 61.9.

“Demand has again outstripped supply, handing pricing power to producers and service providers. At the same time, soaring energy costs and rising wages have added to inflationary pressures,” Williamson said.

“The intensification of inflationary pressures will add to speculation of an increasing hawkish stance at the ECB.”

Inflation in the euro zone hit a record high in January and the European Central Bank is under growing pressure to tighten monetary policy. A Reuters poll last week suggested the Bank would raise its deposit rate in the second half of this year, and not wait until 2023 as previously expected. [ECILT/EU]

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