While input costs increased further in June, with firms reporting higher prices for chemicals, electronic components, energy, metals and plastics, the rate of inflation was the joint-lowest in five months
Business activity in India’s manufacturing sector contracted in June, hit hard by the devastating second wave of the pandemic and consequent stringent containment measures. There were renewed contractions in factory orders, production, exports and quantities of purchases.
The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) declined to 48.1 in June from 50.8 in May. The headline index slipped below the crucial mark of 50 for the first time since July 2020, said the survey report. A reading above 50 indicates expansion and a print below that threshold points to contraction. The PMI sub-index for employment remained in the doldrums, recording its 15th straight month of contraction. The PMI averaged 51.5 in Q1FY22, the lowest three-month figure since the same period one year ago.
In this gloom, however, there was a bright spot. According to the survey report, while input costs increased further in June, with firms reporting higher prices for chemicals, electronic components, energy, metals and plastics, the rate of inflation was the joint-lowest in five months. Moreover, additional cost burdens were again transferred on to clients, with goods producers hiking their fees for the tenth straight month.
“Demand for labour is unlikely to improve anytime soon, too, with backlogs of work decreasing for a second consecutive month. The only real silver lining is that price pressures appear to be coming under control, as the rate of increase in input costs remained at its softest in five months, while the rise in output charges fell to a three-month low," said Miguel Chanco, senior Asia economist at Pantheon Macroeconomics in his report.
Sharing a similar view, Darren Aw, Asia economist at Capital Economics Ltd said, today’s release provides further indications of the inflation outlook. “The output price component fell for the second consecutive month, from 53.3 in May to 52.1 in June. This reading does not have a perfect relationship with the monthly CPI data, but it nevertheless supports our view that the recent acceleration in headline inflation will prove temporary," he said in his latest report.