Services selling prices climb to 7-year high in July: S&P Global

New Delhi: Services inflation rose to a seven-year high in July due to a surge in input costs, particularly higher expenses on labour and materials, an industry survey conducted by S&P Global showed on Monday.

“Higher wage and material costs continued to push up business expenses, with the overall rate of inflation quickening from June. Stronger cost pressures and positive demand trends contributed to the steepest rise in prices charged for the provision of services for seven years,” S&P Global said in its monthly India Services PMI report.

As per the report, which is based on a survey conducted by around 400 services sector companies spread across India, high labour and materials costs led to the surge in input costs of the services firms. The rise in material costs was attributed to greater outlays on eggs, meat and vegetables.

India’s Purchasing Managers’ Index (PMI) for services declined marginally to 60.3 in July from 60.5 recorded in the previous month. The PMI print above 50 indicates growth in the sector while below 50 shows contraction. The services PMI has been above 50-mark for 63 months in a row.

The latest reading was more than six points higher than its long-run average and highlighted a substantial upturn in business activity, S&P Global noted in the report.

There was strong international demand for the Indian services. New export orders increased at the third-strongest pace since the inception of the series in September 2014. Some of the sources of rising export orders mentioned by the surveyed companies include Austria, Brazil, China, Japan, Singapore, the Netherlands and the US.

Favourable economic conditions and optimistic expectations for output supported recruitment among services firms. The latest rise in employment levels was among the strongest in close to two years. Job creation was achieved via the hiring of full- and part-time staff.

“Robust demand conditions, reflected by increased new orders from both domestic and international markets, led firms to increase hiring levels,” said Pranjul Bhandari, Chief India Economist at HSBC.

Looking ahead, services firms remained optimistic about the outlook for the year ahead, Bhandari said.

Around 30% of the companies that participated in the survey expect greater output volumes in the next 12 months, while only 2% expect a decline. The overall level of sentiment rose since June and was aligned with its long-run average. Anecdotal evidence suggested that confidence in the outlook for demand and sales, alongside improved customer engagement and new enquiries, boosted optimism, the rating agency said in the report.

Services as well as manufacturing PMI data indicate inflationary pressure in the economy. As per the manufacturing PMI data released last month, the selling price of manufactured goods rose at the sharpest pace in 11 years in July. Manufacturing PMI declined marginally to 58.1 in July from 58.3 in the previous month.