India’s factory growth accelerates in May despite intense cost pressures

India’s manufacturing sector expanded at its fastest pace in three months in May, supported by sustained demand, although cost pressures remained among the strongest seen in nearly four years and business confidence eased, according to a survey released on Monday.

The HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 55.0 in May from 54.7 in April. The reading was also above the preliminary estimate of 54.3.

A PMI reading above 50.0 indicates growth.

New orders, a key measure of demand, increased at the fastest pace since February. Survey participants cited civil engineering projects, competitive pricing and favourable demand conditions as factors supporting growth.

Domestic demand remained the main driver of expansion. Export orders continued to grow at a solid pace, although their rate of increase was the slowest in three months.

Factory output also rose at its quickest pace in three months, led by intermediate and capital goods producers. Growth among consumer goods manufacturers, however, eased during the month.

Companies continued to add jobs, although the pace of hiring slowed from April.

Input cost inflation remained elevated, recording its second-strongest increase, excluding April, in roughly four years. Higher spending on energy, fuel, materials and transportation contributed to the rise in costs, while the Middle East war was cited as a contributing factor. Among the three sub-sectors monitored, capital goods producers recorded the sharpest increase in input costs.

Selling price inflation eased from April and remained below the rate of input cost growth as competitive pressures limited firms’ ability to pass on the full increase in costs to customers.

Despite the rise in costs, manufacturers sharply increased purchasing activity at the fastest pace in three months, partly to build contingency stocks.

Business confidence fell to its lowest level since February but remained positive. Companies expressed hope that cost pressures would ease, supported by strong order pipelines and marketing efforts.