Services sector activity rose to a three-month high in March, helped by the easing of Covid-induced curbs, even as inflationary pressures because of the Russia-Ukraine war pushed up the cost burden and dampened business confidence, a private survey showed on Wednesday.

The S&P Global India Services Purchasing Managers' Index rose to a 3-month high of 53.6 from 51.8 in February. For the eighth straight month, services saw an expansion in output. A reading above 50 denotes expansion, while a sub-50 print is a sign of contraction.

IHS Markit — the compiler of the PMI — completed its merger with S&P Global on February 28, leading to the renaming of the PMI for India as well as some other countries.

“The war in Ukraine exacerbated lingering issues in supply chains, triggering a re-acceleration in inflation,” said Pollyanna De Lima, economics associate director at S&P Global.

Lima said buoyed by the relaxation of COVID-19 restrictions, consumers were eager to go out and spend. “Service providers recorded the fastest upturn in new business in 2022 so far, with an equal outcome seen for business activity.” Firms recorded the fastest expansions in sales and activity in 2022 so far while business confidence remained subdued due to inflation concerns.

Input costs increased at the sharpest pace in 11 years at the end of fiscal year 2021/22 but companies mostly absorbed additional cost burdens and raised their charges only moderately.

“Inflation risks continued to curb business optimism regarding growth prospects, with sentiment among services companies remaining subdued by historical standards. This lack of confidence in the outlook also meant that employment continued to fall in March,” Lima said.

Inflation expectations continued to dampen business confidence in March. Companies remained upbeat towards growth prospects but the overall level of sentiment remained subdued in the context of historical data, the survey said.

Meanwhile, the S&P Global India Composite PMI Output Index — which measures combined services and manufacturing output — was quoted at 54.3 in March, up from 53.5 in February, highlighting the strongest rate of expansion so far this year.

For the first time in seven months, input price inflation was more acute in the service economy than in the manufacturing industry. Across the private sector, cost burdens rose at the sharpest pace in almost a decade.