Factory activity resumes, defying price pressures

BENGALERU : Manufacturing activity picked up in April after a six-month low in March as new orders and output rose at a faster pace despite mounting inflationary pressures due to geopolitical turmoil, a private survey said on Monday .

The S&P Global India Manufacturing Purchasing Managers (PMI) index improved to 54.7 points in April from 54 points the previous month as the dismantling of covid-19 restrictions continued to support demand. The 50 point mark separates expansion from contraction.

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Growth trajectory

However, the agency warned that persistently high inflation could affect demand as businesses continue to pass the additional cost burden onto buyers.

Inflationary pressures intensified in April as input prices rose at the fastest pace in five months, while production cost inflation hit a 12-month high, driven by rising material prices raw materials, the Russian-Ukrainian war and rising transportation costs, according to the report.

“A major glimpse of the latest results was an intensification of inflationary pressures, as volatile energy prices, global shortages of inputs and the war in Ukraine drove up purchasing costs. Companies responded to this by increasing their fees to the maximum in one year. This escalating price pressure could dampen demand as companies continue to share additional cost burdens with their customers,” said Pollyanna De Lima, associate director of economics at S&P Global.

According to the report, companies reported a further increase in input costs in April, with costs for chemicals, electronics, energy, metals, plastics and textiles higher than the previous month.

The increases were partly attributed to rising freight costs and the war in Ukraine. The headline inflation rate strengthened to a five-month high and exceeded its long-term trend, he said.

After 14 price increases over two weeks in March totaling 10 per litre, gasoline and diesel prices have remained unchanged for 26 consecutive days.

Retail price inflation in India as measured by the Consumer Price Index (CPI) hit a 17-month high of 6.95% in March and is expected to remain high in the coming months as the impact of high oil and commodity prices impacting the economy.

Despite inflationary pressures, output growth accelerated in April and exceeded its long-term average. April data showed a rebound in new export orders, following the first contraction in nine months in March.

In line with the continued improvement in demand, businesses purchased additional inputs in April.

The recovery was strong and the most pronounced since last November, the report points out.

Although there was an improvement in business confidence during the month, the overall level of optimism remained subdued by historical standards.

While some companies forecast further improvements in demand and economic conditions, others said the outlook for the year ahead was difficult to predict, according to the report.

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