Services activity rockets to five-month high in April even as inflation bites

India's services activity improved sharply in April, with the S&P Global India Services Purchasing Managers' Index (PMI) rising to a five-month high of 57.9 from 53.6 in March.

A reading above 50 indicates expansion in activity, while a sub-50 print is a sign of contraction.

According to S&P Global, Indian services activity in April received a boost from higher bookings, easing of pandemic-related restrictions, and favourable demand conditions.

"Survey members continued to suggest that the lifting of COVID-19 restrictions led to greater consumer footfall and a general improvement in demand," S&P Global said, adding that new business inflows increased for the ninth consecutive month in April.

"In isolation, the PMI data for the service sector were mostly encouraging, as surging demand underpinned quicker increases in new business inflows and output. Employment rose for the first time in five months, but business sentiment was restrained by inflation concerns," noted Pollyanna De Lima, economics associate director at S&P Global.

Indeed, concerns about higher prices continued to mount, with operating expenses for service providers rising rapidly enough in April from March to make it the second-strongest since data began to be collected in December 2005.

Unsurprisngly, consumers were passed on the rise in input costs, with inflation for selling prices highest in nearly five years in April.

"Inflation concerns restricted business confidence in April. Although still positive overall, the overall level of sentiment slipped from March and was much lower than its long-run average," S&P Global noted.

The concerns about services inflation come a day after the Reserve Bank of India (RBI) hiked the repo rate by 40 basis points to 4.40 percent following an out-of-schedule meeting of the Monetary Policy Committee. The rate-setting panel noted on May 4 that there were significant upside risks to the inflation trajectory set out in April, which said headline retail inflation would average 5.7 percent in FY23.

Like the services PMI, the composite PMI for April also rose to a five-month high of 57.6. Data released on May 2 showed the S&P Global India Manufacturing PMI increased, albeit in more sedate fashion, to 54.7 in April from 54.0 in March.