India’s service activity expansion, as measured by the services Purchasing Managers’ Index (PMI), slowed to a seven-month low of 58.4 in October from 61.0 in September mainly on account of high inflationary pressures, according to a release by S&P Global. However, a reading of 58.4 depicts services activity remains buoyant in the country.
The services PMI is an indicator, compiled by S&P Global, which measures changes in services activity in the country as compared to the previous month. A reading above 50 denotes expansion in services activity, while a reading below points to contraction.
The services activity’s rate of expansion softened, however, reportedly due to “competitive conditions” and “price pressures”, said the global ratings agency. “There were faster increases in input costs and output charges during October, with rates of inflation outpacing their respective long-run averages.”
The easing of PMI’s expansion was in line with that of manufacturing PMI. As per S&P Global’s release on Wednesday, India’s manufacturing PMI slipped to an eight-month low of 55.5 in October from 57.5 in September.
The composite PMI – a weighted average of both manufacturing and services PMI – also eased to 58.4 in October, the weakest rate of expansion since March.
“Both the manufacturing and services PMIs for September indicate optimistic sentiment on economic activity, but the pace is slowing. High-frequency indicators for services are now showing some mixed trends, with double-digit growth in some (such as, airline passenger traffic, bank deposit growth) and moderation in others from elevated levels (such as, credit card transactions, GST e-way bills),” said Barclays economists in a note.
As per government data, passenger carried by domestic airlines in September had risen 18.3%; while GST e-way bill generation during the month had shown a 9.5% growth.
S&P Global said that anecdotal evidence indicated that growth in services activity was underpinned by the securing of new work, favourable demand trends and positive market conditions. “Competitive pressures and inflationary forces restricted the increase, according to surveyed firms,” it said.
October data showed the second-fastest upturn in international orders placed with Indian services companies since September 2014. “Survey members noted gains from clients in Asia, Europe and the US.”
On inflation – companies attributed the increase in input prices to higher food, fuel and staff costs. The Consumer Services category recorded a particularly sharp rise in input prices, said S&P Global.
Also, due to rising input costs, firms increased their selling prices. “The rate of charge inflation was marked, above its long-run average and the joint-strongest in close to six-and-a-half years,” the ratings agency said.
Further, S&P Global said firms signalled “some loss” of confidence surrounding the outlook for services output, amid rising inflation expectations.