Australia's overall PMI index rises to 51.4, inflation risks remain

Australian PMI data for August showed a slight increase in economic activity. The manufacturing PMI rose to 48.7 from 47.5, the services PMI rose to 52.2 from 50.4 and the headline PMI climbed to 51.4 from 49.9.

Warren Hogan, chief economic adviser at Judo Bank, noted an “improving activity indicators” coupled with “further upward pressure on business costs” and a “softening in final prices”. Hogan stressed that the Australian economy continued to grow in the third quarter, with rising demand for labour a positive sign.

Meanwhile, the final price index fell, suggesting Australian businesses are struggling to pass on higher costs to consumers. Hogan warned that a continuation of this trend could signal some easing in inflationary pressures, albeit at the expense of corporate margins and profitability.

Hogan also sounded cautious about the inflation outlook, noting that continued increases in business costs and improving economic activity – likely boosted by tax cuts implemented in July – underscore ongoing inflation risks in the economy.

He expressed doubt that financial markets would view the RBA's next rate cut as certain, saying: “There is nothing in these results that makes us less likely that the RBA will have to raise the policy rate further before a concerted easing cycle can begin.”

Full Australian PMI flash release here.