Inflation: Growth rate of service sector lowest in four months due to high inflation

The pace of activity in the country's services sector slowed down to a four-month low in July this year. The growth rate of the services sector has registered a decline due to high inflation, competitive pressure and adverse weather impacting demand. With this, S&P Global India's Services PMI (Purchasing Managers' Index) business activity index declined to 55.5 in July, its lowest in four months.

The service PMI in June stood at 59.2. This is the 12th consecutive month that services sector activities have expanded. According to the survey, service providers reporting good sales said that conditions were favorable for demand in July. They also got the benefit of advertising.

However, the growth was hampered by intense competition and adverse weather conditions. Due to this, the overall PMI production index fell from 58.2 in June to 56.6 in July. This marks the lowest increase since March. A PMI above 50 indicates expansion in activity and a figure below it indicates contraction.

Service PMI down to 55.5 in July, 59.2 in June

 Slow pace of both production and sales

S&P Global Market Intelligence Joint Director (Economics) Paulina de Lima said increased competition and high inflation pressures limited trading activity. Growth in both production and sales was the slowest in four months. This had an impact on the growth of the service economy. The domestic market continued to be a major source of sales as international demand for Indian services has already declined further.

Cost of companies increased, employment did not improve

The survey said that business sentiment in the service economy remained weak in July as only 5 per cent of the companies expect production to increase in the coming year. Most companies (94%) expect no further improvement in current business activities.

On the price front, service providers said their average spending has increased in July due to rising fuel, labour, transport, retail and food inflation. It has also affected production.

The data for July shows that there has been a negligible growth in service sector employment across the country. The rate of job creation remained roughly the same as in June. Most companies did not increase the number of employees.

Capital increased in banks after the fall

There has been a tremendous increase in the liquidity of the country's banking system. It has exceeded Rs 2 lakh crore. Last week, it had come down to Rs 50,000 crore to a three-year low. There has been a four-fold increase in liquidity as compared to the previous week. A substantial amount was withdrawn from banks for tax purposes. This caused liquidity problems in front of the banks.

Also Read: Debate on Inflation: Finance Minister said – no one is denying that inflation has increased, we are not running away