Macroeconomic strife continues as Aussie business cost inflation grows

Judo Bank’s latest flash composite Purchasing Managers’ Index (PMI) data, which can be read as a measure of private sector business activity, fell in July to 48.3 points from 50.1 in June.

This marks the first fall below 50 in four months. At the same time, input cost inflation has accelerated to a four-month high, underpinning a correlation between both indicators.

The July data points to a retraction of activity in the services sector in particular and suggests interest rate hikes are the principal headwind on activity, per the Reserve Bank of Australia’s (RBA) intended strategy.

Manufacturing, meanwhile, remains contractionary for the fifth month in a row, according to analysts at TradingEconomics.

New business activity in services increased very slightly but is more or less flat. New export orders also fell in July.

With all this taken on board, it is perhaps unsurprising then that business confidence in Australia sits at around a three-year low – as bad as when COVID-19 first started taking off and world markets choked.

While the read-in confidence has increased slightly in the latest data, the overall findings point towards a country feeling the heat of the kitchen the RBA has created.

A similar data set from Judo Bank, the Australian manufacturing PMI, rose to 49.6 – the highest read in five months and a positive sign, but not enough to overcome clear signals of deteriorating business conditions.

While markets rarely react to PMI data outright, the data will be getting looked at by the RBA ahead of its next meeting in August.