Services PMI at 3-month high, input costs rise

India's services sector expanded at its fastest clip in three months in July, driven by solid expansion of new business, but input prices also rose faster, a survey showed on Wednesday.

The HSBC Markit Business Activity Index, based on a survey of around 400 companies, rose to 58.2 in July from 56.1 in June, staying above the 50 mark that separates growth from contraction for the 27th consecutive month.

The new business sub-index recorded its strongest growth since February, rising to 59.3 from 57.1, as demand improved and firms found new customers.

"The service sector is humming to its own tune, with business activity and new business improving over the previous month, in spite of policy rate hikes and high inflation," said Leif Eskesen, chief economist for India and ASEAN at HSBC.

Input costs, however, rose sharply in July to a four-month high, driven by wages and fuel costs, while backlogs of work increased after three months of contraction, indicating that inflationary pressures are set to go higher.

"With backlogs of work increasing, inflation pressures are set to remain significant and persistent. This also means that the Reserve Bank of India is not quite yet done with tightening," Eskesen added.

Despite evidence that the slew of rate hikes over the past year has started hurting growth in Asia's third largest economy, the RBI raised rates by a surprise 50 basis points last month after inflation accelerated to 9.4% in June, driven by higher prices of manufactured goods and fuel.

Indian factories grew at their slowest pace in nearly two years in July as the rate increases and faltering global demand weighed on new orders and output, the latest HSBC Markit Business Activity Index showed on Monday.