(Bloomberg) -- Australia’s private sector business activity rose at the fastest pace in three months with both employment and input costs gaining, suggesting monetary policy may not be tight enough to damp price and demand pressures.
The services activity index rose to 52.2 in August from 50.4 in July and the composite PMI advanced to 51.4 from 49.9 in the same period, Judo Bank said in a statement on Thursday. Australia’s economy is dominated by services industries and activity in the sector has remained expansionary in the seven months to August.
Meantime, Australia’s manufacturing PMI ticked up to 48.7 in August, from 47.5 in July, the slowest pace of deterioration since May.
Judo Bank Chief Economic Adviser Warren Hogan pointed to Australia’s less restrictive monetary policy — compared with global peers — as well as income tax cuts and energy rebates that began in July to help explain August’s growth.
“This implies that excess demand remains in the economy at the start of the 2024/25 financial year and thus, inflationary pressures are still burbling away,” he said. “This is reinforced by the lift in service sector input prices to the highest index reading since March 2023.”
The data also showed business cost pressures increased markedly, with the August input price index at a higher level than was recorded at any time in the five years prior to the pandemic-era inflation surge.
“The August Flash PMI report highlights the continued inflation risks in the economy,” Hogan said. “There is nothing in these results that allows us to reduce the probability that the RBA may still have to raise the cash rate further before a concerted easing cycle can begin.”
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