India's Services PMI In October Slides To 58.4 As Inflation Rises And Demand Eases

In October, there were faster increases in input costs and output charges, with rates of inflation outpacing their respective long-run averages

The S&P Global India Services Purchasing Managers’ Index fell to 58.4 last month from September’s 61.0, and in August, it was 60.1.

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India’s services purchasing managers’ index (PMI) expanded at its slowest pace in seven months in October on failing demand and rising inflation. The S&P Global India Services Purchasing Managers’ Index fell to 58.4 last month from September’s 61.0, and in August, it was 60.1. Still, the reading was above the 50-mark separating growth from contraction for a 27th consecutive month.

Pollyanna De Lima, economics associate director at S&P Global, said, "The Indian service economy continued to register impressive growth, despite the increases in business activity and new work intakes softening from September's over 13-year highs."

In October, there were faster increases in input costs and output charges, with rates of inflation outpacing their respective long-run averages. While new business, a key gauge of demand, expanded at the slowest pace in five months, exports accelerated again after easing last month from a record high in August.

"Exports was an area of particular strength in October, with new business gains from Asia, Europe and the US boosting growth to its second-highest in the series over a nine-year history."

The survey pointed out "fierce competition and subdued demand for certain types of services," which appeared to dim the business' outlook for the coming 12 months with the future activity sub-index falling to 63.5 from over a nine-year high in September. Employment generation eased to a three-month low. However, it did not stop firms passing on higher input costs to customers with both input prices and prices charged rising faster than in the previous month because of inflating food, fuel and staff costs.

"Although survey participants passed these additional cost burdens on to clients, permitted by demand strength, the rise in charges could have been the trigger of the deceleration in sales growth," said De Lima, while adding, "Moreover, a pick-up in inflation expectations in October dampened business confidence." That could pose upside risks to India’s retail inflation, which cooled to a three-month low of 5.02 per cent in September.