Australia’s Services Sector Growth Slows in September Amid Rising Cost Pressures

Australia’s services sector continued to expand in September, but at a slower pace than the previous month. S&P Global’s survey revealed that the Services Purchasing Managers’ Index (PMI) dropped to 51.9 from 53.2 in August, indicating a deceleration in growth. Firms began reducing their workforce for the first time since May, citing softer sales and rising costs as key factors. Despite the job cuts, backlogs of work increased for the third consecutive month, suggesting that many businesses still have substantial pipelines.

The survey also highlighted growing cost pressures, with respondents reporting faster increases in input costs and the prices they charge customers. Higher fuel and labor expenses were cited as primary reasons for these price hikes. The inflationary pressures in the services sector could be more persistent compared to manufacturing, where goods prices have been easing.

The broader Composite Output Index also cooled, falling to 51.3 from 52.7, indicating that overall private-sector activity remained positive but was largely driven by services, while manufacturing contracted further.

For financial markets, the slower growth and ongoing inflationary pressures in the services sector could impact expectations for interest rate cuts by the Reserve Bank of Australia (RBA). Traders may become less confident that inflation will decline quickly, potentially affecting short-term Australian government bond yields and the Australian dollar, as well as rate-sensitive sectors of the ASX.