Italy services costs at 3-year high as business contracts, PMI shows

ROME, June 3 (Reuters) - Cost pressures in Italy's service sector hit a 40-month high in May as the impact of the conflict in the Middle East became more acute, a survey showed on Wednesday.

The measure of input cost inflation in S&P Global's Purchasing Managers' Index (PMI) for Italy's service sector accelerated to 66.7 from 65.5 in April, marking the highest reading since January 2023.

The headline PMI, a broader gauge of services activity, fell to 49.4, below the 50.0 threshold that separates growth from contraction for a third month in a row, following a 49.8 reading in April. 

A Reuters survey of 11 analysts had pointed to a reading of 49.1.

S&P Global economist Eleanor Dennison said services cost pressures could rise further if the war in the Middle East drags on, while "glimmers of hope" could be found in the report's employment and future outlook indicators.

The employment subindex rose to 50.6 and the gauge of future activity increased to 59.5 last month, from 50.3 and 59.1 respectively in April.

S&P Global's sister survey for Italy's smaller manufacturing sector, released on Monday, showed input cost inflation accelerating for a fifth month running in May to hit a four-year high.

The composite PMI, combining manufacturing and services, was virtually stable in May at 50.4, versus 50.5 the month before.    

Prime Minister Giorgia Meloni's government in April cut its economic growth outlook to 0.6% for this year and next from previous targets of 0.7% and 0.8% respectively.

The government forecast a 0.8% growth rate for 2028, which would mark six consecutive years of sub-1% growth.

(Reporting by Antonella Cinelli, editing by Gavin Jones and Hugh Lawson)