Services activity at 11-year high despite high inflation

Activity in India’s services sector hit an 11-year high in May as new business picked up and demand picked up after the economy reopened from Covid-19 lockdowns, revealed a private investigation on Friday, even as input prices recorded an unprecedented rise.

The S&P Global Purchasing Managers’ Index (PMI) for services rose to its highest level since April 2011 at 58.9 in May from 57.9 in April, with consumer services seeing the biggest increase in new orders.

A reading above 50 indicates expansion and one below that indicates contraction in activity.

“The reopening of the Indian economy has continued to help boost growth in the services sector… That said, the outlook for inflation appears to have deteriorated as input prices have risen at the fastest pace of the history of the survey,” said economics associate Pollyanna De Lima. Director at S&P Global Market Intelligence.

May data recorded a 23rd consecutive month of rising input prices among Indian service providers. The inflation rate hit its highest level in 16 and a half years of data collection, according to the report.

Heightened inflationary pressures impacted business optimism and service companies continued to pass on increased cost pressures and soaring input prices to consumers by raising prices. Businesses worried that inflationary pressures would dampen the economic recovery.

Service providers reported skyrocketing operating expenses, facing higher costs for food, fuel, labor, materials, retail and transportation.

“Inflation showed no signs of abating as price indicators showed an unprecedented rise in input costs and the second fastest increase in selling expenses in just under five years,” S&P said. Overall.

Last month, the consumer services sector recorded the strongest growth in new orders, business activity and the highest rate of input cost inflation. The fastest increase in exit fees was observed in transport, information and communication companies.