High input costs drag manufacturing PMI to 4-month low

India’s manufacturing output expanded at the slowest pace in four months in February dragged by a jump in input costs and subdued new orders from abroad, an industry survey report showed.

Input costs in the manufacturing industry increased further, with firms mentioning higher prices for electronic components, energy, foodstuff, metals and textiles, S&P Global said in the report released on Wednesday.

The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) declined marginally to 55.3 in February from 55.4 in the previous month. In December, manufacturing PMI stood at 57.8.

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“The PMI results suggested that most of the upturn in new orders welcomed by firms was domestically driven as international sales rose at a marginal pace that was the weakest in almost a year,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

PMI is a survey-based indicator of business conditions, which includes individual measures of business output, new orders, employment, costs, selling prices, exports and purchasing activity among others. The PMI print above 50 indicates growth in the sector while below 50 shows contraction.

Input cost inflation has risen sharply after declining to a 26-month low in November. The survey showed some reluctance among manufacturers to pass on cost increases to clients, with output charge inflation easing since January.

The survey data showed that the domestic market was the main source of new business growth in February, as new orders from abroad increased only fractionally. The rise in international sales was the weakest in the current 11-month period of expansion.

Some firms opted to pass cost increases through to clients by lifting their selling prices, while the vast majority (94 per cent) left their fees unchanged in attempts to boost sales.

Overall, factory gate charges rose at a modest pace that was the slowest in three months and below the long-run series average.

Meanwhile, ongoing increases in sales and efforts to rebuild inventories prompted firms to lift input purchasing in February. Buying levels rose sharply and at a rate that outpaced its long-run average.

“Companies were confident in the resiliency of demand and continued to add to their inventories by purchasing additional inputs,” said Lima.

Business confidence improved in February, with firms expecting demand strength, new product releases and investments to bode well for growth prospects.