TORONTO: Canadian manufacturing activity expanded in January for the first time in six months as an uptick in domestic demand led to firms increasing production and inflation pressures showed signs of easing, data showed on Wednesday.

The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) rose to a seasonally adjusted 51.0 in January from 49.2 in December. It was the first month since July that the index was above the 50 threshold that marks expansion in the sector.

“The Canadian manufacturing economy began 2023 on a firmer footing than at the end of last year, registering some welcome, albeit modest, growth in both output and new orders,” Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

The output index rose to 51.0, its highest level since May, from 47.1 in December, while the new orders measure was at 50.3, up from 47.0. Demand was driven by the domestic market as new export orders declined for an eighth straight month.

The input prices index fell to its lowest level since August 2020 at 58.6, down from 61.5 in December, and the measure of output prices dipped.

“Also welcome is the reduction in inflationary pressures and gives additional hope of firmer sector recovery in the months ahead,” Smith said. “However, we must remember that growth is modest, and fears of the negative impacts on output of recession persist.”

The future output index slipped to its lowest since October, while purchasing activity was in contraction for a sixth straight month as firms reported a preference for utilizing existing stocks.