PMI survey: Factory activity expands at a modest pace in October

The HSBC Manufacturing Purchasing Managers Index (PMI) released today shows a marginal improvement. The index rebounded from September’s nine-month low of 51.0 to 51.6 in October. According to Frederic Neumann, Co-Head of Asian Economic Research at HSBC said: "Manufacturing activity picked up modestly amid stronger output and new order flows, particularly from overseas clients.” The index of new export orders has risen from 54.5 in August to 55.3 in October.

New business also increased for the twelfth month in a row. This is attributed to improvements in demand, with growth of new business being broad based across sectors. According to the survey, the strongest rise was recorded in intermediate goods category.

Inflationary pressures have remained muted, probably on account of the sharp fall in commodity prices over the past few months. Neumann adds that “price pressures declined with input prices easing further”. The rate of cost inflation slowed to the weakest in 17 months.

But the survey also finds that the “improvement in growth allowed firms to raise margins by increasing output prices slightly”. This rise in output prices, while marginal does suggest some degree of pricing power for manufacturers. Thus, while retail inflation has fallen sharply, the rise in output prices could imply that rather than succumbing to calls on interest rates cuts, RBI will remain cautious and adopt a wait and watch approach.

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