HSBC PMI – rise continues, but inflationary pressures seen

The HSBC India Purchasing Managers’ Index (PMI) – a composite indicator designed to give an accurate overview of manufacturing operating conditions – reached a 21-month peak in November, the bank said.

However, inflationary pressures intensified during the month, following three consecutive months of easing, HSBC said. “Among the surveyed sub-categories, the sharpest increase in purchase prices was seen in intermediate goods. Rising input costs, along with improving demand, drove output prices higher in November. The rate of charge inflation picked up to the quickest in five months, but remained historically muted.”

At least by a minority, the news is unlikely to be welcomed by policymakers who are set to review interest rates in a couple of days. The RBI is seen as cutting, or setting the stage for an easing, of interest rates later this week.

Purchasing managers’ index is created by querying those at corporations responsible for procurement about current levels of spending and their anticipation for the future and comparing how it is changing.

The latest improvement in business conditions was solid overall and the thirteenth in consecutive months, HSBC said.

“Consumer goods was the best performing of the broad areas monitored. Production rose in line with the headline index in November, as the rate of output growth picked up to the fastest since February 2013. Anecdotal evidence linked expansions in production to rising new work inflows.”

Manufacturing operating conditions in India improved for the thirteenth month in a row in November, supported by stronger growth of output and new work intakes, HSBC said .

Foreign orders and buying activity also rose during the month, while employment remained broadly stable. “However, a cautionary note was provided by survey data regarding input costs and output charges, as inflationary pressures intensified,” the bank said.

By sub-sector, the sharpest increase was registered in consumer goods. “November data reinforced reports of stronger-than expected demand, as new order growth accelerated to the quickest in 21 months.”

Consumer goods was again the best performing of the surveyed sub-sectors. Similarly, foreign orders received by Indian goods producers continued to rise strongly in November.

Survey respondents generally attributed growth to strengthening demand from key export clients.

Input buying at Indian manufacturers increased in November, reflecting stronger order books and higher production requirements.

“Subsequently, stocks of inputs expanded for the sixth month running, albeit at a modest pace overall. Post-production inventories also rose during the month, although the rate of inventory building was also marginal.

“In spite of accelerated expansions in output and new business, employment in the Indian manufacturing economy remained broadly unchanged in November. That said, the respective index posted in line with the average observed so far this year.”

Stability in payroll numbers was signalled in each of the monitored subsectors apart from consumer goods, where job creation was reported. Higher prices paid for metals, chemicals and energy led to a solid rise in input costs in November, thereby marking a 68-month period of cost inflation.