BEIJING, (Reuters) – China’s service sector grew at a quicker pace in October thanks to robust demand. However, rising inflationary pressures weighed down on business confidence for next year, according to a private survey.

Caixin/Markit services Purchasing managers’ index (PMI), rose 53.8 to October – the most since July – from 53.4 September. On a monthly basis, the 50-point mark distinguishes between growth and contraction.

Contrary to an official survey that showed a slowdown in growth in services, the private survey had better results.

Analysts believe that the service sector is less likely to be affected by sporadic COVID-19 epidemics than the manufacturing industry, which could impact the prospects for the anticipated recovery of consumption over the next few months.

Since October, China’s tourism and leisure industries have felt the heat of the zero tolerance COVID-19 policy to control infections. Cities infected with the virus or with suspected cases have had to close down their entertainment venues. They also restricted tourist and delayed cultural events.

An index for new business increased to 54.1, from 53.1 in September. It was boosted by higher export orders than the month prior.

Due to increasing labour costs and increased raw materials prices, input prices saw an increase for 16 consecutive months. This was the fastest rate since July. The strong demand enabled firms to transfer some costs to consumers which drove an increase in prices, reaching their highest point in three years.

The survey revealed that business confidence fell to its lowest level in 4 months due to persistent inflationary pressures, and worries about supply chain issues.

Caixin’s October composite PMI (which incorporates both manufacturing activity and services activity) jumped to 51.5 from 51.4 last month.

Both demand and supply recovery have maintained momentum. More or less, employment was steady. Wang Zhe (senior economist, Caixin Insight Group) stated that prices gauges were very high.

“Policymakers need to take more than effective measures for stabilizing commodity supplies and prices. They also have to pay attention to the downstream businesses, particularly those of small and medium size.”