The latest data reveals that the services sector in Australia experienced a contraction in July, raising concerns about the persistence of inflationary pressures. The Judo Bank Australia Services Performance of Manufacturing Index dropped to 47.9, reaching its lowest level since December. This decline comes after the Reserve Bank of Australia’s decision to keep interest rates on hold for two consecutive months following unexpectedly cooled inflation in the second quarter.
Warren Hogan, the chief economic advisor at Judo Bank, highlighted that this is the third consecutive monthly decline in the services activity index, indicating that the economy is headed for a soft landing in the coming year. However, the July inflation indicators presented a different story, with final prices increasing by 2.4 points, reaching the highest level since January. This trend raises concerns for the Reserve Bank of Australia, as it suggests that services price inflation is unlikely to fall significantly below 4% to 5% over the next six months. Hogan further noted that the beginning of the new financial year has seen a series of price increases at a faster pace compared to the second quarter.
The data also revealed that services business activity suffered its largest monthly drop since the start of the Reserve Bank of Australia’s aggressive tightening cycle in May 2022.