India PMI July 2018

India: Composite PMI hits a near two-year high in July on the back of a strong services sector

The composite Purchasing Manager’s Index (PMI), produced by Nikkei and IHS Market, rose to 54.1 in July from 53.3 in June, climbing further above the 50-point threshold that separates expansion from contraction in the private sector. The result marks the best reading since October 2016 and was largely driven by stronger output in the services sector.

The manufacturing PMI ticked down to 52.3 in July from 53.1 in June. Despite this, the index remained above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has been since August 2017. The weaker reading in July was due to softer increases in output, new orders and employment. In terms of prices, input cost inflation moderated from June’s multi-year high, leading to a weaker rise in output charges in July. Looking ahead, business sentiment in the manufacturing sector regarding the coming 12-month period improved to a three-month high in July.

The Nikkei services PMI increased to 54.2 in July from 52.6 in June, remaining in expansionary territory for the second month in a row. The strong print marked the fastest rate of growth in over one-and-a-half years and came on the back of robust new orders growth. New business inflows grew at the strongest pace in over a year, buttressed by favorable demand conditions. In turn, companies ramped up hiring in July. On the price front, input inflation continued to accelerate markedly, with reports of higher fuel and food prices pushing up costs. Output inflation, however, eased as companies were unable to pass on costs to price-sensitive clients. Looking ahead, business sentiment in the services sector regarding the coming 12-month period improved in July.

Commenting on both PMI developments in July, Aashna Dodhia, economist at IHS Markit, said:

“Marked expansions in both the manufacturing and service sector, with stronger growth in the latter, powered the fastest improvement in overall operating conditions in the economy since October 2016. However, there are some warning signs reflected by PMI price data. Although overall input cost inflation softened from June’s near four-year high, service companies faced the fastest rise in input costs since March amid reports of high oil prices. Indeed, an uncertain global climate, currency weakness and strong inflation may continue to place pressure on the central bank to hike interest rates over the coming months.”

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