Australia Services Sector Growth Slows Amid Rising Inflation Pressures

The S&P Global Australia Services PMI dropped to 51.9 in September, marking the slowest growth in three months. While the services sector remains in expansion mode, the reading suggests weakening momentum compared to August's 53.2. The Composite Output Index, which includes manufacturing, also fell to 51.3, indicating that growth is now confined to services as factory output continues to contract.

New business in the services sector grew at its softest pace in three months, though export orders saw a slight rebound for the first time since April. Despite softer demand, firms still managed to increase backlogs of work for a third consecutive month. However, employment in the services sector declined for the first time since May, reflecting concerns over slower order growth and rising costs.

Price pressures intensified, with both input costs and output prices accelerating and remaining above long-run averages. Higher fuel, labor, and other expenses drove input costs, particularly in consumer services. Firms passed on more of these costs to customers, raising concerns about sustained inflation. Business confidence also dipped to a three-month low, with some firms expressing worries about the economic outlook.

S&P Global noted that faster output price inflation across the private sector suggests consumer prices may stay elevated, potentially keeping the Reserve Bank of Australia (RBA) in a hawkish stance. The RBA now faces the challenge of balancing a softening economy against persistent inflationary pressures.