Strong demand pushed Indian factory growth in October to highest level in eight months

BENGALURU (Reuters) – Activity at Indian factories grew at its fastest pace in eight months in October on strong demand and increased production, although a further surge in raw material costs has clouded the outlook, according to a private survey.

FILE PHOTO: A worker cuts a metal pipe inside a steel furniture factory in the western Indian city of Ahmedabad, February 2, 2015. REUTERS / Amit Dave

Monday’s data pointed to a prolonged recovery in business in Asia’s third-largest economy following the pandemic-induced recession and, along with rising price pressures, could strengthen views that the Reserve Bank of Europe India will tighten monetary policy sooner than expected, as will other major central banks.

The Manufacturing Purchasing Managers Index, compiled by IHS Markit, jumped to 55.9 in October from 53.7 in September, the highest since February, and remaining above the 50 level separating growth and contraction for a fourth consecutive month.

“With companies bracing for further improvements in demand by building up their inventories, it looks like manufacturing activity will continue to expand through the third quarter of fiscal 2021/22 if the pandemic remains under control. “, Pollyanna De Lima, Associate Director of Economics. at IHS Markit, said in a statement.

“Optimistic business confidence and ongoing projects should also support production in the coming months.”

The latest survey showed the new orders sub-index, an indicator of domestic demand, reached 58.7 last month, its highest level in seven months. Foreign demand has also grown at its fastest pace since July, encouraging companies to increase production.

However, companies cut jobs for a third consecutive month.

“Despite the overall improvement in operating conditions, employment has not increased. This was often linked to sufficient capacity to cope with current workloads and government standards regarding shift work, ”De Lima said.

Last month, input costs rose at the fastest rate in nearly a decade, prompting manufacturers to shift some of the burden onto customers. This suggests that headline inflation here will remain high over the coming year.

The recent surge in global crude oil prices to nearly $ 85 a barrel is also making policymakers and consumers nervous, given that India meets more than 80% of its oil needs through imports.

But the RBI is not expected to raise interest rates until at least the start of next fiscal year, in April-June 2022, a separate Reuters poll showed here.

Reporting by Vivek Mishra; Editing by Shri Navaratnam

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