Indian manufacturers remain in a rough mood amid sluggish demand and high inflation. The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) fell to 53.9 in June, from 54.6 in May. A reading above 50 indicates expansion and below the threshold indicates a contraction. The headline index remains in the expansion zone, but the latest figure is the lowest level since September last year.
There was some moderation in cost inflation, with the key input price index falling to a three-month low. However, this softening should not be rejoiced for now, given that the index remains above its long-term average. “The surveillance firms reported growth for a wide range of inputs including chemicals, electronics, energy, metals and textiles, which they passed on to customers partly in the form of higher selling prices,” the survey report said.
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Adam Hoyce, an assistant economist at Capital Economics Ltd., explained that the reduction in price pressure was probably due to lower commodity prices. “However, slow growth in demand and the first drop in delivery times for suppliers since February 2021 also played a role,” he said in a report. Hoyas believes that with inflation taking a toll on manufacturers’ confidence, the Indian economy is by no means out of the woods on the inflation front.
Trade optimism, as measured through the Futures Output Index, fell to a 27-month low of 50.9 in June. As the accompanying chart shows, India’s readings for this metric are lower than those of the global and Asian regions. Unfortunately, economists do not see a respite from cost inflation for Indian manufacturers in the near future.
“At the moment, it is too early to say that things are getting better on the inflation front for Indian manufacturers. The tax changes announced on Friday will have some inflationary impact,” said Rahul Bajoria, managing director and chief economist of India at Barclays. The government has imposed special additional excise duty on exports of petrol and diesel and also increased import duty on gold. .
Bajoria said prices of some food items like palm oil and soybean have come down. However, the pass-through to inflation will take some time. “So although we are not seeing rising inflationary pressures, it will take time for inflation to moderate in a meaningful way,” he said.
Meanwhile, economists expect the Reserve Bank of India to continue raising interest rates in its upcoming policy meetings to contain inflation.