India factory output picks up pace in January on strong demand
Photo Credit: Reuters

Indian manufacturing activity unexpectedly accelerated in January, helped by a strong increase in domestic demand and production, according to a private survey that also showed a marginal rise in inflationary pressure.

The Nikkei Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, rose to 53.9 from 53.2 in December, confounding expectations in a Reuters poll for a fall to 52.5 in January.

The index was above the 50-mark separating growth from contraction for an 18th straight month, its longest stretch of expansion since November 2015.

Manufacturers raised production at the fastest pace in 13 months, as orders also rose at the quickest rate since December 2017, primarily driven by robust domestic demand. Growth of export orders slowed for a second month.

“The manufacturing industry in January made up for ground lost at the end of 2018, with new business and production expanding at rates not seen for over a year,” said Pollyanna De Lima, principal economist at IHS Markit.

“The trend for employment remained encouraging, with job creation evident for the 10 month running. Further confidence in market conditions were shown by a rebound in business sentiment, which reached a five-month high.”

Muted inflationary pressure over the past few months has enabled firms to transfer some of the cost burden from a slight rise in input price inflation onto customers.

That should keep retail inflation below the Reserve Bank of India’s medium-term target of 4 percent. The annual pace dropped to an 18-month low of 2.19 percent in December, which should keep the central bank on track to ease monetary policy soon.

The RBI is expected to change its stance from “calibrated tightening” to “neutral” at its Feb. 7 policy meeting and cut interest rates in June at the latest, according to economists polled by Reuters in January.

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