India’s services PMI slips to 4-month low in July due to high inflation

High inflationary pressures and weakening demand caused India's main services sector to see a severe growth slow in July, further lowering company forecasts. The S&P Global India Services Purchasing Managers' Index declined from 59.2 in June to 55.5 in July,  its lowest since March.

However, for a year, the index has been above the 50-mark that separates growth from contraction, and the figure for July was higher than the long-term average.

Furthermore, despite falling from a record high of over 11 years reached in June, the rather positive rating was supported by solid domestic demand.

India has been struggling with high inflation, which has reached a nearly decade-high and is being compounded by rising commodity costs, like many other nations. The rupee's decline has increased imported inflation much more.

"There were many positives in the latest results. Business activity continued to rise strongly, with a similarly robust uplift in new business as the offering of new services and marketing efforts bore fruit. There was, however, a noticeable loss of momentum for the Indian service economy as demand was somewhat curtailed by competitive pressures, elevated inflation and unfavourable weather," said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

The Reserve Bank of India (RBI) embarked on its tightening cycle in May, later than most of its peers, but is expected to front-load subsequent hikes to combat inflation.

Despite being at a four-month low, the new business sub-index performed well by historical norms since domestic demand remained stable. New export orders contracted for the 29th straight month since the onset of the coronavirus pandemic.

Similar to June, few businesses created new jobs last month because they had enough employees to meet demand.

Despite slowing to their lowest rate since February, input costs increased significantly and remained above the long-term average. Costs for labour, retail, food, fuel, supplies, tools, and transportation were all on the rise.

Firms chose to pass some of the additional costs to customers, and although that pace eased from an almost five-year high set in June, it was still above trend.

The factory PMI increased to its highest level since November, supporting the overall S&P Global India Composite PMI Output Index's solid performance at 56.6. The composite PMI, however, was down from 58.2 in June and at a four-month low.

(With inputs from Reuters)