On Wednesday, the HSBC India Services Purchasing Managers’ Index (PMI) came in at 57.7 for the month of December. The survey-based index, which is seasonally adjusted, was slightly lower than November’s very high reading of 61.3. A reading of more than 50 signifies expansion, while one below 50 shows contraction. The HSBC Manufacturing PMI for India for December, at 57.7, was a bit lower than the November reading of 58.4. The numbers show that India’s economy continues to expand at a rapid pace.

The PMIs support other evidence of robust growth, such as the recent acceleration in bank credit growth. What is interesting, however, are the PMI sub-indices that have to do with prices. The input price sub-index for the manufacturing PMI stood at 64.9 in December, against 62.5 in November. That’s a very high rate of growth and reflects high commodity inflation. In comparison, the rise in the output price index has been relatively tepid, perhaps because pricing power is still not strong in some industries. That’s also evident in margins being squeezed for companies. Non-food manufacturing inflation data for November show it’s moving up again, after bottoming out in September, but the increase has been small. Nevertheless, the strength in the PMI numbers, together with the hike in the manufacturing output price index from 52.5 in November to 54.7 in December, should give the Reserve Bank of India (RBI) some cause for worry.

Similarly, the input prices index for the services PMI, too, went up during December to 57.7. The Prices Charged sub-index, equivalent to output prices, also improved to 54.8. It’s worth noting this sub-index was just 49.4 in October, indicating that prices were being reduced at that time. The long-term average for this sub-index is just 52.4 so the December reading indicates high inflation in the service sector, not measured by the official Wholesale Price Index.

Graphic: Shyamal Banerjee/Mint

So does the overall picture show a robust global recovery? So far, not really. As mentioned, the recovery in Europe continues to be a two-speed one, with Ireland, Spain, Greece and Italy showing weakness. In China, the rate of expansion of the HSBC Composite index, which tracks both manufacturing and services, showed the rate of expansion at a three-month low. More significant was the slowdown in new order growth.

The patchy state of the world economy is reflected in the 2011 Grant Thornton survey of international business. The percentage balance of businesses indicating optimism over pessimism for 2011, according to the survey, is -71 for Japan, -50 for Spain, -45 for Ireland, -44 for Greece, 8 for the UK, 23 for the US, 42 for China and, hold your breath, 93 for India. Incidentally, optimism in China is down from +60% last year to +42%.

The chart shows the JPMorgan Global Manufacturing PMI over the last year. The index finished the year at 55, the same level as in December 2009. The index measures month-on-month expansion so growth has been strong. Interestingly, though, in 2010 the pace of global manufacturing growth started decelerating from April right through September, picking up steam again in October. Recall that the Chinese PMI even turned negative during the slowdown, concerns over Europe reared their heads and there were fears of a double-dip recession in the US. Since October, though, the world economy seems to have got its second wind after the crisis.

But already a consensus seems to be forming that robust growth in the world economy this year will mean higher commodity prices. The International Energy Agency has said that oil import prices are becoming a threat to the fragile recovery in the Organisation for Economic Cooperation and Development (OECD) nations. For commodity prices and especially for oil prices, it is emerging markets growth that matters. A recent International Monetary Fund working paper pointed out that emerging market economies accounted for more than 100% of the change in global oil demand between 2000 and 2008 because the crude oil consumption of the OECD nations declined during the period. China accounts for a third of incremental oil demand. Inflation is high and the Chinese government has been raising rates, but the rate hikes haven’t been enough. A Merrill Lynch report last month caused a flutter when it said 9% growth is the “new normal" for China. That’s down from an estimated 10.3% this year, but that’s unlikely to be enough to reduce the upward pressure on commodities.

For India, growth is not an issue. But inflation certainly is, all the more so because the base effect will not be available from the middle of this year, because pricing power will increase and because international commodity and crude prices are increasing. Stronger global growth will only make it worse.

Manas Chakravarty looks at trends and issues in the financial markets. Comment at capitalaccount@livemint.com