Services rebound in March, as per S&P Global PMI

Consumers could face rising prices in the coming months as input costs rise fastest in 11 years

Consumers could face rising prices in the coming months as input costs rise fastest in 11 years

India’s services sector posted the strongest growth since December 2021, according to the S&P Global India Services Purchasing Managers’ Index (PMI), which rose from 51.8 in February to 53.6 in March. A score of 50 on the PMI indicates no change in business activity.

However, on a quarterly basis, January-March 2022 registered the weakest period for services players in 2021-22, with an average reading of 52.3, significantly lower than the previous quarter’s 57.4 reading.

Input costs rose at the strongest pace in 11 years in March 2022, as operating costs were pushed up by higher prices for chemicals, fuel, raw materials, retail, transportation and vegetables.

The Services PMI also signals a further decline in service jobs in March, although the pace of the contraction slowed. While some service companies have passed on some of the higher input costs, consumers are likely to experience rising prices in the coming months as costs rise.

Higher visitor numbers due to the easing of COVID-19 restrictions boosted contact-intensive services, but domestic sales accounted for most of the growth in services as new export orders continued to decline.

The contraction in new export orders was sharp and the fastest since last September, and inflation risks continued to curb entrepreneurial optimism about future growth prospects.

For the first time in seven months, input price inflation was more acute in the services economy than in the manufacturing sector. In the private sector, costs rose at the fastest rate in nearly a decade, according to S&P Global.

“The war in Ukraine exacerbated lingering problems in supply chains, further accelerating inflation in India’s service economy. March results showed the strongest increase in input costs in 11 years, but this has not slowed down the sector’s recovery,” said Pollyanna De Lima, the company’s associate director of economics.

While consumers were eager to get out and spend money as pandemic restrictions were eased. Ms. De Lima noted that inflation risks continued to curb entrepreneurial optimism about growth prospects, while sentiment among service companies remained subdued by historical standards.

“This lack of confidence in the outlook also meant that employment fell further in March,” she emphasized. Within the services sector, finance and insurance had the best month in terms of sales and output, while real estate and business services were the weakest links, with a sharper decline in new orders and business.

Consumer services posted the strongest increase in input costs, while transportation, information and communications registered the strongest rate inflation, S&P Global said in a note on the PMI survey, which is based on responses from 400 companies.

Taking the services and manufacturing sectors together, aggregate manufacturing growth reached a three-month high, with the S&P Global India Composite PMI Output Index rising from 53.5 in February to 54.3 in March.

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