By Gina Lee

Investing.com – China’s services sector activity as demand remained strong. However, the rising inflation has impacted business confidence over the coming year.

The index was released earlier today and showed that it had reached 53.8. This is higher than the 53.4 in the month prior. Indicators of growth indicate that the index was above 50.

The data from the private survey, which focuses more on small firms in coastal regions, contrasted with the National Bureau of Statistic’s , which was a lower-than-expected 52.4. The manufacturing sector had a 50.6 and a 49.2 respectively.

Services sector’s recovery has been slower than that of its manufacturing counterpart due to it being more susceptible to viruses and the associated mobility restrictions. This will limit the potential for an increase in consumption over the next few months.

The “Zero Covid” strategy pursued by China has hit leisure and tourism businesses hard as the country deals with its latest COVID-19 outbreak. Cities with cases, or those with concerns about the virus’ spread, have closed entertainment venues, restricted tourism, and delayed cultural events.

The 16th consecutive month saw an increase in input prices. It was also the most rapid rate of growth since July 2021 due to the rising cost of labor and raw materials. But, firms were able to pass on some costs because of strong demand.

However, persistent inflationary pressures as well as concerns over supply chain issues led to business confidence falling to its lowest point in four months.

Both demand and supply recovery have maintained momentum. More or less, employment was steady. “The prices are high, the gauges,” Wang Zhe (Caixin Insight Group Senior Economist) told Reuters.

“Policymakers need to take effective steps to stabilize commodity prices and supplies, and also be attentive to the downstream businesses, particularly those of small or mid-size.”