Indian economic growth adds to inflation woes

India’s manufacturing sector expanded strongly in April, adding fresh pressure to inflation, but the pace of growth cooled slightly in the big industrial centres of east Asia, according to the latest monthly data.

Purchasing Managers’ Index data for India, published on Monday by HSBC, confirmed that growth remained robust in spite of eight increases in interest rates by the Reserve Bank of India over the past year in an attempt to conquer inflation, currently 9 per cent.

The April PMI index showed a rise to 58.0, compared with 57.9 in March, indicating that the pace of growth in manufacturing activity strengthened slightly from its high level in March. PMI figures of more than 50 indicate expansion, with numbers below that level indicating contraction.

Detailed figures for sub-indices showed that input prices continued to rise rapidly, suggesting that upward pressure on inflation was likely to continue. However, the pace of growth in input prices moderated slightly, with the index falling for the first month since mid-2010, from 68.7 to 66.3.

Leif Eskesen, HSBC’s chief economist for India, said the strong PMI numbers were likely to “keep the RBI hawkish”, with a further increase in interest rates possible as soon as Tuesday.

In contrast to the rising pace of expansion in India, manufacturing PMI data for South Korea, also released on Monday, showed a slight easing in the pace of growth, as did official and unofficial PMI reports for China, released at the weekend.

China’s Federation of Logistics and Purchasing said its PMI measure fell to 52.9 in April from 53.4 in the previous month, indicating continuing growth but at a slightly slower pace.

Zhang Liqun, an analyst at the federation, said the official data suggested that growth was slowing in line with demand, according to state media. If sustained, the easing of the pace of growth would help to slow the economy and reduce inflationary pressures.

HSBC’s unofficial China PMI index was flat at 51.8, reflecting “relatively soft market demand”. China has increased interest rates four times since October, but inflation jumped to 5.4 per cent in March, mainly because of rising food prices.

South Korea’s PMI slipped to 51.7 from 52.8 in March, signalling a moderation in growth that economists said might reflect a slowdown in export orders caused by the March 11 earthquake and tsunami in Japan.

Japan’s PMI, released on Thursday by the Japan Materials Management Association and Markit, the economics consultancy, showed a further decline caused by the continuing impact of the earthquake.

The index hit a two-year low of 45.7, down from 46.4 in March, indicating a significant contraction of activity. The level of incoming new business fell sharply, with the rate of decline the fastest since March 2009, said JMMA/Markit.