India’s dominant services industry expanded at the fastest pace in over eleven years in June amid strong demand but stubborn inflation remains a concern as prices charged rose at the sharpest rate in almost five years, as per the S&P Global India services PMI data.
The S&P Global India Services Purchasing Managers’ Index rose to 59.2 in June from 58.9 in May, its highest since April 2011.
The overall S&P Global India Composite PMI Output Index was strong at 58.2, down from 58.3 in May. Data earlier showed that the factory PMI fell to a 9-month low in June.
A reading above 50 separates growth from contraction.
“Demand for services improved…supporting a robust economic expansion for the sector over the first quarter of fiscal year 2022/23 and setting the scene for another substantial upturn in output next month,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.
A sharp upturn in demand, increased sales and favourable economic conditions kept the new orders sub-index above the breakeven mark for the eleventh month and drove it to its highest reading since February 2011. Input cost inflation remained elevated compared to historical levels due to higher costs for chemicals, food and petrol, despite falling to a three-month low in June.
Firms continued to pass on the additional costs to consumers and the prices charged index was at a near five-year high. The transport and information and communication industries posted the sharpest rise in selling prices, as per S&P Global.
“Unrelenting inflation somewhat concerned service providers, who were cautious in their forecasts,” added De Lima.
Persistently high inflation, alongside concerns over the weakening of the Rupee, leading to a dampening in optimism.
The Indian rupee has tumbled to record lows against the U.S. dollar in recent weeks as more hawkish policy moves were expected from the U.S. Federal Reserve this year. Firms hired additional staff in June to meet demand, although the rise in employment was marginal and only the second increase in seven months.
The Reserve Bank of India is expected to raise interest rates again soon after hikes of 50 basis points in June and 40 bps in May to prevent growing inflationary pressure from becoming broad-based.