Italy service sector returns to growth as cost pressures ease, PMI shows

ROME, July 3 (Reuters) - Business in Italy's service sector grew marginally in June after three months of contraction, a survey showed on Friday, as cost pressures eased amid signs of de-escalation in the conflict in the Middle East. 

S&P Global's Purchasing Managers Index (PMI) rose to 50.2 from May's 49.4, edging above the 50 threshold that separates growth from contraction for the first time since the U.S.-Israeli attack on Iran at the end of February.

A Reuters survey of nine analysts had pointed to a reading of 50.5.

The survey's measure of input cost inflation fell sharply in June to 62.1 from 66.7, remaining high by historical standards but posting the first decrease since January.

The "prices charged" indicator also declined, to 52.8 from May's 54.1.

"Signs that the heat is coming off inflation will be a welcome reprieve at service providers and consumers alike," said S&P Global economist Eleanor Dennison.

Italian consumer price inflation eased slightly to 3.1% in June from 3.2% the month before, preliminary data showed on Tuesday.

S&P Global's sister survey for Italy's smaller manufacturing sector, released on Wednesday, also showed cost pressures and supply chain disruption easing in June.

The composite PMI, combining manufacturing and services, rose to 50.8 in June from 50.4 the month before, indicating a third consecutive month of expansion.

The services survey showed the "new business" sub-index climbing to 51.0 in June from 48.9 in May. 

The employment indicator declined slightly to 50.4 from 50.6 but still pointed to modest job creation during the month.

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 Gavin Jones, editing by Toby Chopra)