India’s June services growth fastest in over 11 years

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BANGALURU, July 5 (Reuters)India’s dominant services industry grew at the fastest pace in more than eleven years in June amid strong demand, but stubborn inflation remains a concern as prices charged rose at pace the highest in nearly five years, a private survey showed on Tuesday.

The S&P Global India Services Purchasing Managers’ Index INPMIS=ICE rose to 59.2 in June from 58.9 in May, its highest since April 2011 and above the 50 mark separating growth from contraction. A Reuters poll had predicted a drop to 58.7.

A strong recovery in demand, an increase in sales and favorable economic conditions kept the new orders sub-index above break-even for an eleventh month and drove it to its highest level since February 2011 .

“Demand for services has improved (…) supporting a solid economic expansion in the sector in the first quarter of FY 2022/23 and paving the way for another substantial recovery in production next month,” said Pollyanna De Lima, associate director of economics at S&P. Global market intelligence.

Although it fell to its lowest level in three months in June, input cost inflation remained high compared to historical levels due to rising costs for chemicals, feed and ‘essence.

Businesses continued to pass on additional costs to consumers, and the price charged index hit a nearly five-year high. The transportation and information and communication industries saw the biggest rise in selling prices, S&P Global said.

Continued high inflation, coupled with concerns over a weaker rupiah, dampened optimism. The future activity sub-index was down slightly from May, remaining below its long-term average.

“Relentless inflation has somewhat worried service providers, who have been cautious in their forecasts,” De Lima added.

The Indian rupee has fallen to record lows against the US dollar in recent weeks as more hawkish policy action was expected from the US Federal Reserve this year.

India’s central bank is expected to raise interest rates again shortly after hikes of 50 basis points in June and 40 basis points in May to prevent mounting inflationary pressures from spreading.

Businesses hired additional staff in June to meet demand, although the rise in employment was marginal and only the second in seven months.

The overall S&P Global India Composite PMI Output Index was solid at 58.2, down slightly from 58.3 in May, as buoyancy in the services sector offset slower growth in the manufacturing sector. Factory PMI INPMI=ICE fell to a 9-month low in June.

(Reporting by Shaloo Shrivastava; Editing by Kim Coghill)

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