PMI Data Point To Sticky Services Inflation

The final Judo Bank composite PMI for December was revised down 0.5pp to 46.9 from the preliminary read but it is still up on November’s 46.2. Judo Bank notes this is consistent with a “soft landing”. It is signalling that the economy contracted at the end of the year though but at a slightly slower pace. The move was driven by a 0.5pp downward revision to 47.1 for the services sector as new business fell at its fastest pace in over two years. November was 46.

• Input costs for services eased but optimism regarding the outlook over the year ahead resulted in a pickup in selling price inflation. Judo Bank observes that both input and output prices remained “well above their series averages” but December costs rose at the slowest since October 2021.
• The RBA has been concerned about the stickiness of services prices and if the Q4 data due on January 31 shows that it is not moving lower fast enough to bring the aggregate back to target in line with forecasts, then that could be enough to drive a February rate hike.
• Australia’s employment growth has been an area of the economy that defied gravity in recent months and the services PMI is suggesting that it accelerated in December. Employment data is due on January 18.
• The drop in new business was both domestically-driven and from abroad due to elevated costs, higher rates and a weaker economy.
• The Q4 services PMI deteriorated over 2 points from Q3 and is suggesting that quarterly GDP growth may slow further.
• See Judo Bank report here.

Source: MNI - Market News/ABS/Bloomberg