Factory activity in India grew robustly again in August as an improvement in demand and easing input cost inflation boosted output and buoyed business confidence, a private survey showed.
The Manufacturing Purchasing Managers’ Index compiled by S&P Global dipped slightly to 56.2 in August from 56.4 in July, but stayed above the 50-mark that separates growth from contraction for the 14th straight month.
That marked the second best index reading since last November and beat the Reuters poll expectation of 55.0.
“This robust performance was complemented by a fourth successive monthly slowdown in the rate of input cost inflation, which slipped to the lowest in a year amid softer pressures from commodity prices,” noted Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.
Lower prices of some commodities such as aluminum and steel helped moderate inflationary pressures. However, despite cooling for a fourth month, the input cost inflation was broadly in line with its long-run average.
High inflation has been a concern for firms and has weighed on consumers’ wallets, hitting demand.
To try and combat inflation, the Reserve Bank of India (RBI) started hiking interest rates in May from a pandemic low and is expected to make more increases this fiscal year, a Reuters poll showed.
Asia’s third-largest economy expanded 13.5% year-on-year in the April-June quarter — the fastest pace in a year, but lower than the forecast of 15.2% taken in a Reuters survey.
However, economists said growth is likely to lose momentum in coming quarters as higher interest rates cool economic activity.
Firms again increased their selling prices, passing on some of the greater freight, labour and material costs to clients. However, the rise was marginal.
The new orders sub-index rose to a 9-month high on increased underlying demand, while the pace of expansion in output was the strongest since November.
International demand, which has been in expansionary territory since March, rose significantly last month from July.
Business expectations distinctly improved in August on strong sales forecasts, boosting the index to its highest since August 2016.
“Inflation concerns, which had dampened sentiment around mid-year, appear to have completely dissipated in August as seen by a jump in business confidence to a six-year high,” added De Lima.
Hiring in the manufacturing sector remained muted.
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