In July, prices of manufactured goods rise at fastest pace in 11 years

India’s manufacturing output growth slowed marginally in July from June while the selling prices of manufactured goods rose at the sharpest pace in nearly 11 years due to surge in labour and input costs, showed an industry survey report by S&P Global on Thursday.

Purchasing Managers’ Index (PMI) for manufacturing declined marginally to 58.1 in July from 58.3 in the previous month. The PMI print above 50 indicates growth in the sector while below 50 shows contraction. 

“Buoyant demand conditions created a ripple effect across the manufacturing industry, mainly through a substantial upturn in new work intakes. Despite slowing since June, the pace of sales growth was sharp in the context of historical data,” S&P Global said in its monthly report, which is based on a survey conducted among around 400 manufacturers spread across India.

Manufacturers increased selling prices sharply in July. In addition to higher cost of raw materials, the companies that participated in the survey suggested that steeper labour costs and demand strength sparked upward adjustments to output charges. “The rate of inflation picked up to the fastest in just under 11 years,” S&P noted in the report.

“The continuous increase in the output price index, driven by input and labour cost pressure, may signal further inflationary pressure in the economy,” said Pranjul Bhandari, Chief India Economist at HSBC.

Companies substantially increased their production volume during the month. The rate of growth eased from June, but the respective index was nevertheless nearly six points above the average seen since the survey began in March 2005, S&P Global said.

New export orders remained a bright spot, rising to the second-highest level since early 2011. Indian manufacturers reported robust increase in international sales during the month of July led by strengthening demand from clients based in Asia, Europe, North America and the Middle East.

The overall level of positive sentiment towards the year-ahead outlook for production was broadly unchanged since June. “Growth is expected to be supported by marketing efforts and new client enquiries,” S&P Global noted in the report.