India’s May Services Activity at Highest Level in 11 Years

(Bloomberg) -- Activity in India's services sector improved to its highest level in eleven years as lifting of virus curbs bolstered demand, though sentiment going forward may be tempered by rising inflation.

S&P Global India Purchasing Managers Index for services rose to 58.9 in May from 57.9 in April, making it the best reading since April 2011. A number above 50 signals growth while a print below that shows contraction in activity.

Inflation expectations continued to weigh on business confidence as input costs climbed to a new record, the survey showed. May data marked the 23rd straight month of rising input prices as firms reported substantial pressure from food, fuel, labor and transportation costs.

High commodity prices, due in part to the war in Ukraine, pushed India's retail inflation to an eight-year high in April, while wholesale prices saw the biggest jump in more than three decades. The central bank, which last month surprised with an off-cycle increase in borrowing costs, is seen raising interest rates further when it reviews monetary policy next week.

“Inflation outlook appeared to have worsened as input prices rose at the sharpest pace in the survey history,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence. “Several companies mentioned the need to transfer mounting costs through to clients.”

The rebound in the dominant services industry, which accounts for more than half of the nation's gross domestic product, helped pull the composite index to the 10th consecutive month of expansion, as a separate survey of factory managers earlier in the week showed momentum in India's manufacturing activity was intact in May.

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