The expansion in Indian manufacturing sector fell to its slowest in 15 months during August as demand and output grew at their weakest pace amid increasing cost pressures, according to IHS Markit India Manufacturing Purchasing Managers' Index (PMI) released on Monday.
At 51.4 in August, the seasonally-adjusted manufacturing PMI signalled a further improvement in the health of the sector. However, the headline figure was down from 52.5 in July to its lowest mark since May 2018 and below its long-run average of 53.9.
With sales expanding at the slowest rate in 15 months, production growth and job creation were tamed, while factories lowered input buying for the first time since May 2018.
"August saw an undesirable combination of slowing economic growth and greater cost inflationary pressures in the Indian manufacturing industry," said Principal Economist at IHS Markit Pollyanna de Lima.
"Most PMI indices moved lower, including key health-check measures for new orders, output and employment. In the former two cases, rates of expansion were particularly weak when we look at the survey history," she said in a statement.
A worrying sign was the first drop in input buying for 15 months which reflected a mixture of intentional reductions in stocks and shortages of available finance. Until manufacturers are willing to loosen the purse strings, it is difficult to foresee a meaningful rebound in production growth on the horizon.
"Another factor restricting quantities of purchases was a pick-up in the rate of increase in input prices. While not alarming, the acceleration in cost inflation may restrict central bank stimulus to the economy in the near-term," said de Lima.
Although Indian manufacturers saw their cost burdens increase to a greater extent in August, the rate of input price inflation remained below its long-run average. On the other hand, charge inflation eased as a number of factories refrained from price hikes amid efforts to boost sales.
Goods producers maintained optimistic growth projections with hopes of a pick-up in demand and marketing efforts predicted to support output in the year ahead. Sentiment strengthened to a 16-month high.
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