Pricing pressures dampen mfg PMI in March

India’s manufacturing growth slowed in March from a 20-month high recorded in February, primarily due to significant acceleration in input costs. The HSBC Markit India Manufacturing Purchasing Manager’s Index (PMI), based on a survey of 500 companies, stood at 57.8 in March, down from 58.5 in February.

“The most attention-grabbing aspect of the March PMI was the surge in input prices to a new series high, suggesting that companies are facing sizeable and mounting cost pressures. The survey also indicates that manufacturers are becoming more willing to pass on some of these increases in the form of higher output prices,” said Robert Prior Wandesforde, Senior Asian Economist, HSBC.

Moreover, he stated that the increase in input costs was an impact of the one-off duty hikes announced in the Budget and that the Reserve Bank of India should be concerned about containing inflationary pressures, as respondents are pointing to supply-side pressures. Moreover, he adds that the biggest danger to Indian economic growth in the coming months will be the inability to meet demand due to lack of capacity, rather than a significant softening in the demand itself.

“We believe the central bank has a lot of catching up to do if it is to deal with the rapid escalation of price rise in the economy,” adds Wandesforde.

Headline inflation touched 9.89 per cent in February and analysts expect the wholesale price index to reach double digits in March. A pickup in growth could keep it high in the coming months.