Factory Activity In India Surges In April Even With High Inflation

Factory Activity In India Surges In April Even With High Inflation
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Factory activity in India increased last month, boosted by a steady increase in demand as pandemic restrictions were removed, while rising energy prices pushed input costs to a five-month high, according to a survey conducted by a private organization. 

After shrinking in March, international demand soared to a 9-month high, and domestic demand was above average.

S&P Global’s Manufacturing Purchasing Managers’ Index increased to 54.7 in April from 54.0 in March.

It came in over the 50-mark, which distinguishes growth from contraction, for the eighth month in a row, beating the Reuters poll’s prediction of 53.8.

“Factories continued to scale up production at an above-trend pace. The ongoing increases in sales and input purchasing suggested that growth will be sustained in the near-term,” noted Pollyanna De Lima, associate economics director at S&P Global.

A loosening of COVID-19 limitations fueled this confidence, but a recent surge in coronavirus infections and an electrical shortfall could stymie industrial activity in the coming months.

Relative to previous patterns, business expectations were muted. While some companies expected more growth in the coming year, others said it was difficult to foresee the future.

In April, businesses employed more workers, but the increase was little compared to March.

Due to disruptions caused by the Russia-Ukraine conflict, input costs grew quickly since November, exacerbated by rising transportation costs and commodity prices.

As in prior months, customers shared the additional costs, and prices charged increased at the fastest rate in a year.

“A major insight from the latest results was an intensification of inflationary pressures, as energy price volatility, global shortages of inputs and the war in Ukraine pushed up purchasing costs,” added De Lima.

“This escalation of price pressures could dampen demand as firms continue to share additional cost burdens with their clients.”

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The Reserve Bank of India is projected to boost its key interest rate in June and take a more aggressive rate hike path to keep inflation under control.

On the other hand, the unemployment rate in India increased to 7.83% in April from 7.60% in March, according to figures released on Sunday by the Centre for Monitoring Indian Economy (CMIE).

According to the figures, the urban unemployment rate increased to 9.22% in April from 8.28% the previous month, while the rural jobless rate decreased to 7.18% from 7.29%.

The northern state of Haryana has the highest unemployment rate of 34.5%, followed by Rajasthan with 28.8%.

According to economists, sluggish domestic demand and the slow rate of economic recovery amid rising costs have hurt job chances.

According to Shilan Shah, an economist at Capital Economics in Singapore, retail inflation hit a 17-month high of 6.95% in March and is expected to peak around 7.5% later this year. In June, he expects the central bank to raise the repo rate.

Because the government does not disclose its monthly estimates, economists and policymakers closely monitor the data from the Mumbai-based CMIE.

They’ve also been monitoring the declining labor participation rate, which measures the proportion of persons working or looking for jobs among the working population. CMIE’s preliminary data showed that this fell to 39.5% in March 2022 from 43.7% in March 2019, as millions of people lost their employment during the epidemic.

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