BENGALURU – India’s factories grew faster than anticipated last month. The overall demand remained high despite the persistently high inflation. According to a private survey, this encouraged companies to hire at the highest rate since January 2020.

This survey is just one day after data revealed that Asia’s third largest economy grew at 4.1% annually in the January-March quarter. It was also its weakest year-over-year, owing to rising price pressures.

Still, the Manufacturing Purchasing Managers’ Index, compiled by S&P Global (NYSE:), came in at 54.6 in May, slightly lower than April’s 54.7 but above the 50-level separating growth from contraction for an eleventh month.

This was more than the Reuters poll median prediction (54.2).

New orders, which is a gauge for overall demand and strength, increased last month strongly, though at a slower pace. However, foreign demand rose at its highest pace since April 2011, in spite of concerns over Russia-Ukraine’s conflict, China’s economic slowdown, high inflation, and other worries.

“India’s manufacturing sector sustained strong growth momentum in May,” noted Pollyanna De Lima, economics associate director at S&P Global.

According to “demand resilience”, companies put their best efforts into rebuilding stocks and hired more workers to meet the demands.

Good news for the labor market, firms have hired more workers than ever in the past two and a quarter years. The Centre for Monitoring Indian Economy in Mumbai, an independent think tank, reported that unemployment increased to 7.83% in April, from 7.60% the previous month.

Surging prices are still a problem.

Although the pace of inflation in input prices eased slightly in May, it jumped at its fastest rate since October 2013. This suggests that overall inflation will remain high over the next months. It could worsen the current cost-of-living crisis.

De Lima added that “While companies seem to be focused on the present, the survey’s gauge business optimism shows a feeling of unease among manufacturing firms.”

“The panelists were generally concerned that acute price pressures would harm growth prospects and the overall sentiment level was at its lowest since 2012.

Markets were shocked by the Reserve Bank of India’s unexpected rate increase to 4.40% at 40 basis points last month. It is now widely believed that they will raise rates more aggressively in the coming months to reduce inflation.[RBI/INT]