BENGALURU (Reuters) - India's factory activity expanded at its quickest pace in eight months in October on strong demand and increased output, though another surge in the cost of raw materials cast a shadow over the outlook, a private survey showed.
Monday's data pointed to an extended business recovery in Asia's third-largest economy from the pandemic-induced slump and, alongside rising price pressures, may boost views the Reserve Bank of India will tighten monetary policy earlier than expected, like other major central banks.
The Manufacturing Purchasing Managers' Index, compiled by IHS Markit, jumped to 55.9 in October from September's 53.7, the highest since February, and remaining above the 50-level separating growth from contraction for a fourth straight month.
"With companies gearing up for further improvements in demand by building up their stocks, it looks like manufacturing activity will continue to expand throughout the third quarter of fiscal year 2021/22 should the pandemic remain under control," Pollyanna De Lima, economics associate director at IHS Markit, said in a release.
"Upbeat business confidence and projects in the pipeline should also support production in the coming months."
The latest survey showed the new orders sub-index, a proxy for domestic demand, rose to 58.7 last month, its highest in seven months. Foreign demand also expanded at its quickest pace since July, encouraging firms to raise output.
However, firms shed jobs for a third straight month.
"Despite the overall improvement in operating conditions, jobs failed to increase. This was often linked to sufficient capacity to deal with current workloads and government norms surrounding shift work," De Lima said.
Last month, input costs increased at the strongest pace in nearly a decade, pressing manufacturers to pass on some of the burden to customers. That suggests overall inflation https://www.reuters.com/world/india/soaring-prices-dampen-consumer-mood-indias-festival-season-2021-10-21 will remain elevated over the coming year.
The recent surge in global crude oil prices to near $85 a barrel is also making policymakers and consumers nervous given India meets over 80% of its oil needs through imports.
But the RBI is not expected to raise interest rates until at least the beginning of next financial year, in April-June 2022, a separate Reuters poll https://www.reuters.com/world/the-great-reboot/delayed-recovery-greatest-risk-pandemic-hit-indian-economy-2021-10-05 showed.
(Reporting by Vivek Mishra; Editing by Shri Navaratnam)