Services PMI: Steep price hikes could take the wind out of companies' sails
Why SBI is comfortably placed despite slow growth in deposits The rising costs of labour and materials were a particular bother for services providers. Within materials, the cost increase was attributed to dearer eggs, meat and vegetables. Lately, both services providers and manufacturers have been hiking prices to pass on their rising input costs to customers.
Worryingly, the composite charged inflation reading climbed to a near 11-and-a-half-year high of 54.4 in July. The composite PMI data is a weighted average of the manufacturing and services PMI readings. Also read | Zomato: fast delivery, faster investor reward For now, services firms remain strongly optimistic about their growth prospects.
A PMI gauge of business confidence for services providers rose to 63.7 in July from 60.3 in June. Around 30% of the survey panel forecast greater output volumes in the next 12 months, while only 2% expect a decline. Anecdotal evidence suggested that confidence in the outlook for demand and sales, alongside improved customer engagement and new enquiries, boosted optimism, said the PMI report.
However, continuous price increases could dampen demand, especially in discretionary services. It could also further delay the much-anticipated interest rate cuts by the Reserve Bank of India. The central bank is scheduled to meet on 6-8 August and is widely expected to maintain a status quo on interest rates this time as well.
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