Services activity expands at over 11-year high to 58.9 in May but cost pressures spike

India's services activity in May expanded at the strongest rate in over 11 years, but cost pressures surged in sync, according to the S&P Global India Services PMI Business Activity Index.

The Services PMI rose to 58.9 in May from 57.9 a month back, the quickest increase since April 2011, according to a statement released on June 3. A purchasing managers' index (PMI) reading above 50 indicates expansion in activity, while a sub-50 print is a sign of contraction.

“The reopening of the Indian economy continued to help lift growth in the service sector,” Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said. “Elevated price pressures continued to restrict business optimism.”

Anecdotal evidence suggests that there is better underlying demand for services with strong inflows of new work.

However, the month witnessed an unprecedented rise in input prices, which businesses continued to pass on costs to consumers. The rate of inflation climbed to the highest in the survey’s 16-and-a-half years of data collection.

One-fifth of the panelists signalled increases, citing higher costs of food, fuel, labour, material, retail and transportation.

Also read: Consumer price inflation surges to near-8-year high at 7.79% in April

Despite optimism in the 12-month horizon, firms stayed concerned that inflationary pressures could dampen economic activity. Service providers refrained from taking in new workers in May, leading to a marginal decrease in employment.

The latest data continues to signal subdued global demand for Indian services.

The composite PMI for May rose to 58.3 from 57.6 in April. Data released on June 1 had showed the S&P Global India Manufacturing PMI declined marginally in May to 54.6 in March from 54.7 in April.