June PMI robust, inflation a worry

New Delhi: The manufacturing sector sustained its momentum in June due to robust business conditions, a survey showed on Monday, but inflationary pressures remained firm. The HSBC Purchasing Managers' Index (PMI) — an index designed to measure the overall health of the manufacturing sector — posted 55.0 in June, almost similar to the reading of 54.8 in May. The 50-point mark separates expansion from contraction. 

    Economists said the PMI survey data for June could delay interest rate cuts for now due to stubborn inflationary pressures. The PMI data is in variance with official data which shows the industrial sector is still sluggish with growth in April at 0.1%. Official data has been plagued by errors and sharp volatility which economists say makes it difficult to predict a trend and hampers policymaking. Firms said product quality improvement combined with stronger demand contributed to higher levels of new orders. As a consequence, output expanded again in June, extending the current expansionary period to three years and three months. But new export orders increased moderately, the survey showed. 
    Output prices increased as manufacturers attempted to pass further rises in the cost of inputs on to their clients. Moreover, firms in India reported that charges also increased in line with more expensive labour costs. Input prices continued to increase, extending the inflationary period to 39 successive months. The rate of inflation in June was sharp and the largest since August, 2011. 
    "Input and output prices rose at a faster pace than in May, keeping inflation high by historical standards. In light of these numbers, the RBI does not have a strong case for further rate cuts, which could add to lingering inflation risks," said Leif Esekesen, chief economist for India and ASEAN at HSBC.