As firms struggle to meet rising prices due to constraints in supply chain, growth in business activity within the euro zone has been slowing down. Meanwhile, ongoing COVID-19 fears have made it difficult for the dominant service sector of the bloc, according a survey.

IHS Markit’s Flash Composite Index Purchasing Managers’ Index (a reliable indicator of overall economic health) fell to 54.3, six months after it was 56.2 in September.

It was also lower than the forecast from Reuters, who had expected a smaller drop of 55.2 points but it was comfortably higher than the 50-mark that separates growth and contraction.

Chris Williamson of IHS Markit, chief business economist said that due to the sharp fall in October the eurozone will begin the fourth quarter experiencing the worst growth since April.

The overall rate for economic growth has remained above the long-run average, but there are risks in the near term as the pandemic continues its disruption of economies and prices.

The coronavirus pandemic and shortages of heavy-goods vehicle drivers caused supply chain bottlenecks that led to an increase in the index for input prices from 70.9 to 73.1. This was the most significant change since mid-1998 when the survey started.

PMI fell from 56.4 to 54.7 in April. It was also lower than the forecast of 55.5 Reuters poll.

Firms hired staff at the highest rate in 14 years. In comparison to 54.1, 56.0 was the new employment index.

Manufacturing activity was strong and the PMI for factories remained at 58.6 in September. However, the composite PMI index, which measures output, fell to 53.2, from 55.6. This is its lowest level since June 2020.

The prices for raw materials that factories require have risen at an unprecedented rate. While some manufacturers transferred the costs to their customers, the majority of the burden was not passed on to them. Since IHS Markit began collecting this data in the late 2002, it has risen to 72.3.

Williamson explained that the average selling price for goods is rising at a rate never seen in over 20 years, and this will lead to increased consumer prices in coming months.

This suggests that the current surge in inflation will not be diminishing anytime soon. The European Central Bank believes the increase would only be temporary.