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Factory PMI jumps to 8-month high in Jan

* Price pressures remain as input costs grow at a faster pace in January,2012

Written by ENS Economic Bureau | Mumbai | Published: February 2, 2012 1:22:46 am

Indicating a revival in the country’s manufacturing activity,the HSBC manufacturing purchasing managers’ index (PMI) jumped to 57.5 from 54.2 in December due to increased domestic and foreign demand. This is the fastest rise in PMI in the last eight months.

India’s headline PMI has held above the 50 level that separates growth from contraction for almost three years,underlining the sector’s resilience in the face of a global downturn. India’s factory output sub-index jumped to 62.9 in January from 55.8 in December,the biggest rise from one month to the next on record. Both the output and the new orders indexes rose to their highest level since May last year. “Activity in the manufacturing sector rebounded again in January led by higher demand from both domestic and foreign clients,suggesting some recovery in sentiment in recent months,” said Leif Eskesen,economist at HSBC.

The PMI suggests more strength lies ahead because new orders showed demand from both domestic and export clients. However,price pressures remain as input costs grew at a faster pace than in December. “These numbers suggest it’s premature for the RBI to cut policy rates and that they have to await evidence of a significant and sustained decline in inflation and/or further materialisation of downside risks to growth before they can roll out rate cuts,” Eskesen said.

Wholesale inflation,the main measure of price pressures in India,slowed to a two-year low of 7.47 percent in December as rising food costs slowed sharply. However,manufacturing inflation was still strong,leaving the Reserve Bank of India little room for more aggressive policy measures to help growth. The new data suggests a startling pick up in a sector that has been battered by feeble growth in the US and Europe and a prolonged spell of monetary policy tightening in India. Industrial output expanded 5.9 percent in November from a year earlier,government data showed last month,beating all forecasts and swinging from a contraction of 4.7 per cent in October. After 13 rate rises to stamp out inflation in between March 2010 and October 2011,the RBI signalled last month it was shifting its focus to growth by CRR requirements for banks by 50 basis points.

World factory output curbed by Europe
Crumbling global demand restrained factory output in Asia and most of Europe in January,business surveys showed on Wednesday,putting pressure on policymakers to shore up growth and counter a spreading malaise. Reuters

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