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Input costs rose at their fastest pace since November, aggravated by higher transportation costs and commodity prices. Image Credit: Bloomberg

Bengaluru: Factory activity in India picked up last month, bolstered by a solid increase in demand as pandemic restrictions were eased, but rising energy prices pushed input costs to a five-month high, a private survey showed.

International demand also jumped robustly to a nine-month high after contracting in March and domestic demand was above average.

The Manufacturing Purchasing Managers’ Index compiled by S&P Global, improved to 54.7 in April from 54.0 in March.

It beat the Reuters poll expectation for 53.8 and was above the 50-mark, which separates growth from contraction, for a tenth consecutive month.

“Factories continued to scale up production at an above-trend pace, with the ongoing increases in sales and input purchasing suggesting that growth will be sustained in the near-term,” noted Pollyanna De Lima, economics associate director at S&P Global.

That optimism was underpinned by an easing of COVID-19 restrictions, but a recent spike in coronavirus cases and an electricity shortage could impair industrial activity in coming months.

Indeed, the level of business expectations remained subdued compared to past trends. While some firms predicted better growth in the next 12 months, others indicated the outlook was difficult to predict.

Firms hired more workers in April but the rise was marginal from March.

Input costs rose at their fastest pace since November, aggravated by higher transportation costs and commodity prices, owing to disruptions due to the Russia-Ukraine war.

The additional costs were shared by consumers as in previous months and prices charged rose at the sharpest pace in a year.

“A major insight from the latest results was an intensification of inflationary pressures, as energy price volatility, global shortages of inputs and the war in Ukraine pushed up purchasing costs,” added De Lima.

“This escalation of price pressures could dampen demand as firms continue to share additional cost burdens with their clients.” The Reserve Bank of India is now expected to raise its key interest rate in June and opt for a steeper rate hike path to tame inflation.