Service sector inflationary pressures from inputs eased in September, and were the most muted since November 2009
September 2014 data indicated growth of Indian private sector activity for the fifth consecutive month as the HSBC Composite Output Index posted 51.8, up fractionally from 51.6 in August 2014. The latest reading was consistent with a moderate expansion in private sector output. Indian manufacturers signalled a slowdown in output growth, in contrast to the accelerated expansion in activity recorded at services companies.Rising from 50.6 to 51.6, the headline seasonally adjusted HSBC India Services Business Activity Index - a single question tracking changes in activity at Indian services companies on a month-by-month basis - was indicative of a moderate improvement in service sector activity during September. Anecdotal evidence linked growth of activity to increased new work intakes. Business activity rose in half of the six monitored sub-sectors, with by far the sharpest expansion noted in Post & Telecommunications.
Amid reports of stronger demand, growth of new business at Indian services firms was signalled for the fifth month running in September. Moreover, the pace of expansion picked up from August and was solid overall. New work intakes across the private sector as a whole expanded at a reduced pace during the month, due to a marked deceleration in new order growth at manufacturers.
Job creation was evident in the Indian service sector for the first time in three months in September. That said, the rate of hiring was fractional overall. Similarly, employment across the private sector rose for the first time since June in September, as workforce numbers in the manufacturing industry were broadly unchanged. Following six successive months of backlog accumulation, outstanding business in the Indian service sector remained stable in September. Consequently, despite a twenty-sixth consecutive monthly expansion in backlogs at manufacturers, volumes of work-in-hand across the private sector rose at the weakest pace in the current seven-month period of backlog accumulation.
Meanwhile, service sector inflationary pressures from inputs eased in September, and were the most muted since November 2009. Where input prices were reported to have risen, panel members commented on higher raw material costs. Likewise, cost pressures in the manufacturing sector softened in September, causing the overall rate of cost inflation to fall to the weakest since April 2009.
Similarly, output prices at services firms rose at the weakest pace since the current inflationary period began in November 2010 during September. The rate of charge inflation also slowed at manufacturing companies, as selling prices across the private sector rose at the mildest pace in 47 months.
Despite falling to the weakest level in a year, business sentiment regarding future output at Indian services companies remained strong in September. Survey respondents associated optimism with anticipated improvements in demand and new marketing initiatives.
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Commenting on the India Services PMI survey, Frederic Neumann, Co-Head of Asian Economic Research at HSBC said: Services sector activity bottomed out in September thanks to stronger new business flows. However, business sentiment continues to deteriorate after a strong post-election uptick. On the positive side, employment rose and inflation fell significantly. A pick up in reform effort is sorely needed to put growth on a firmer footing and address supply side risks to inflation.
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