Indian factory activity expanded in June at its quickest pace since February while output prices rose at the fastest rate in eight months, signaling a further rise in inflation that is bound to vex the central bank, a business survey showed on Tuesday.
The HSBC Manufacturing Purchasing Managers’ Index (PMI), compiled by Markit, advanced to 51.5 in June from 51.4 in May. A figure above 50 indicates expansion.
A jump in new export orders pushed the output sub-index to 52.4 from 51.7 in the previous two months.
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“Things are gradually improving in India’s manufacturing sector. Output picked up in June, supported by growing order flows, especially from overseas,” said Frederic Neumann, co-head of Asian economic research at HSBC.
But domestic demand remained weak, hurting jobs growth.
“The muted pace will suit the RBI: since input and output prices are rising as well, faster growth would only stoke inflation and require tightening,” added Neumann.
The survey showed firms passed on a greater cost burden to consumers. Prices charged rose at their fastest pace since October.
After May wholesale price inflation hit a five-month high any further move up would put pressure on the Reserve Bank of India to leave interest rates on hold for longer or even to raise them.