The data of Purchasing Managers’ Index (PMI) suggests that factory output has inched up in April, supported by bulging order books. However, growth slowed down due to supply side constraints and inflationary pressures. Also prices of output have gone up. The HSBC India Manufacturing Purchasing Managers' Index (PMI), compiled by Markit, rose marginally to 54.9 in April from 54.7 in March. The index has remained above the 50-mark that divides growth from contraction for more than three years now.
New orders continued to pour in, including those for exports. The new orders sub-index rose to 61.1 in April after falling to 58.1 in March, buoyed by strong exports. However, manufacturers found it difficult to meet their commitments due to power shortages. As a result, backlogs of work increased substantially. In fact manufacturers have had to dip into inventory to meet their clients’ requirements.
Further the input price sub-index has moved up quite sharply. The PMI survey showed the costs of raw materials grew at their fastest pace since August. As a result, the output price sub-index, which saw a deceleration in March to 54.1 after remaining at around 56 for several months, is back up to 58.7 in April.
Given the numbers one can deduce that upside risks to inflation remain. It also suggests that the RBI’s reading that core inflation is coming down may be premature and the rate cuts a bit too aggressive. The upshot is that the new orders/ inventory ratio has gone up in April, which means that growth should remain strong in May too, as producers replenish inventory.
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