India’s services PMI hit 4-month low of 55.5 in July amid high inflation


Momentum in India’s services sector hit a four-month low, with the seasonally adjusted S&P Global India Services PMI business activity index falling from 59.2 in June to 55.5 in July, due to reduction in demand due to competitive pressures, high inflation and adverse weather conditions. said Wednesday.

Printing in June was the highest in 11 years. PMI Services reflects sentiment in the services sector.

For the 12th consecutive month, the service sector experienced an expansion in production. In Purchasing Managers’ Index (PMI) parlance, a number above 50 signifies expansion while a score below 50 indicates contraction. “India’s service sector recovery lost momentum in July as weaker sales growth and inflationary pressures limited the latest upturn in business activity. While marketing efforts supported a further increase in new jobs, competitive pressures and adverse weather conditions have dampened demand,” Pollyanna De Lima, economics associate at S&P Global Market Intelligence, said in a statement.

The domestic market remained the main source of sales growth as international demand for Indian services worsened further, according to the survey.

Meanwhile, the business climate in the services economy was subdued in July, as only 5% of firms expect output growth in the coming year, while a large majority they (94%) foresee no change in business activity from current levels.

On the price front, service businesses reported a further increase in their average spending in July, with food, fuel, materials, personnel, retail and transportation cited as the main sources of inflationary pressures. . Input costs rose sharply, but at the slowest pace in five months.

“The slight easing of inflationary pressures on costs to a five-month low was also welcomed by service companies struggling to preserve margins and contributed to a more moderate rise in invoice prices. Still, participants in survey again signaled considerable pressure on food, fuel, input, labor, retail and transportation costs,” Lima said.

On the employment front, July data showed a negligible increase in service sector employment in India. The rate of job creation was fractional and broadly similar to June. The vast majority of companies left payroll figures unchanged amid a lack of need to increase headcount.

Meanwhile, the S&P Global India Composite PMI Output Index – which measures the combined output of services and manufacturing – fell from 58.2 in June to 56.6, highlighting the smallest increase since March.

“New business growth accelerated in manufacturing while it slowed in the service economy. At the composite level, sales rose strongly but at the slowest pace in four months,” the survey said.

According to official data, retail inflation based on the Consumer Price Index (CPI), which the Reserve Bank of India (RBI) takes into account when formulating its monetary policy, is above 6 % since January 2022. It was 7.01. % in June.

Experts believe the RBI could make its third straight hike in policy rates by at least 35 basis points to control high retail price inflation.

The RBI’s rate-setting committee – the monetary policy committee – will meet for three days from August 3 to deliberate on the current economic situation and announce its bi-monthly review on Friday.

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