India’s factory activity expanded for the seventh straight month in February, driven by strong demand and increased output, according to a private sector survey that also showed input-cost inflation hitting a 32-month high.
Although the Nikkei Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, eased slightly to 57.5 in February from 57.7 in January, it was well above the 50-level separating growth from contraction.
New orders
Sub-indexes showed output and new orders rose sharply last month, albeit at a slower pace than in January, indicating strong demand.
“Indian goods producers reported a healthy inflow of new orders in February, a situation that underpinned a further upturn in output and quantity of purchases,” noted Pollyanna DeLima, economics associate director at IHS Markit.
India’s economy returned to growth after two quarters ofcontraction and expanded 0.4% in the Oct-Dec quarter over a yearago, government data showed on Friday, a tad lower than 0.5%growth expected in a Reuters poll.
Firms shed jobs again in February, albeit at a modest pace,amid ongoing government-imposed restrictions on workplaces dueto the coronavirus.
Still, purchases of raw materials increased at the fastestpace in nearly a decade as firms safeguarded against shortagesand to meet high production needs.
Strong demand for raw materials and semi-finished items,alongside supply chain disruption due to coronavirusrestrictions, pushed cost inflation to its highest sincemid-2018.
High inflation was a concern for the Reserve Bank of Indialast year but it has eased recently.
“The upbeat mood supported the fastest increase in inputbuying for almost a decade as companies focused on rebuildingtheir input stocks to fulfill demand growth. February datashowed the sharpest monthly rise in pre-production inventoriesin the survey history,” added De Lima.
Firms passed some of the cost burden to consumers byincreasing their prices but that pace was slower than in Januaryand much weaker than the rise in input cost.