Mumbai: Manufacturing expansion cooled slightly in July as a global slowdown ate into export demand, but output prices rose at their fastest pace in more than two years as producers passed on raw material costs, a survey showed.
The data comes three days after Reserve Bank of India (RBI) raised its main lending rate to its highest in seven years to quell double-digit inflation and signals manufacturing activity, while robust, has slowed slightly from December’s 33-month peak.
The ABN Amro Bank NV purchasing managers’ index (PMI), released on Friday, was a seasonally adjusted 57.8 in July, moderating from a four-month peak of 58.6 in June.
A reading above 50 signals expansion while a figure below 50 suggests contraction.
The PMI, compiled by UK-based Markit Group Ltd and sponsored by the Dutch bank, tracks changes in manufacturing business conditions by polling 500 companies each month on output, new orders, employment and prices.
The survey showed the output price index rose for the fourth consecutive month and at 56.6 was the highest since May 2006. It said producers had passed on higher input prices, particularly of fuel and metals, due to strong demand.
Input prices rose for the fifth consecutive month to 59.2, the highest reading in 22 months.
“The most worrying sign from a macroeconomic perspective is that inflationary pressures are getting more entrenched,” said Gaurav Kapur, senior economist at ABN Amro Bank. “Acceleration in both input and output price indices for the last quarter is strong evidence of that phenomenon.”
Data on Thursday showed the annual rate of wholesale price inflation, the most widely watched barometer of prices in India, came within a whisker of 12% in mid-July, its highest since annual numbers in the current series became available in April 1995.
The new orders index eased to a two-month low of 63.6 in July from 65.7 in June.
The pace of export orders slowed to a three-month low of 54.7 in July from 58.8 in June and the output index slipped to 61.9 compared with 63.8 a month earlier.
“Loss of momentum on the export front in July points to declining external demand on the back of global economic activity slowing down,” Kapur said.