Australian Manufacturing PMI Points to Easing Inflation Pressures

SYDNEY-Activity in Australia's manufacturing sector continues to slow as a broad economic slowdown takes hold, bringing with a reduction in inflation risks.

The headline seasonally adjusted Judo Bank Australia Manufacturing Purchasing Managers Index fell to 47.7 in November from 48.2 in October. The latest reading signaled a ninth monthly deterioration in manufacturing sector conditions and at the quickest pace since May 2020.

The PMI recorded the lowest reading in the eight-year history of the survey outside of periods of pandemic-related lockdowns, but the data is still consistent with a soft landing for the economy, said Warren Hogan, Chief Economic Advisor at Judo Bank.

The slowdown comes as the Reserve Bank of Australia continues to raise interest rates, taking the official cash rate to a 12-year high of 4.35% at the start of November, while warning more may be needed if inflation pressures remain sticky.

"There is strong evidence in the November survey that manufacturers' capacity to pass on cost pressures has been compromised by the broader economic slowdown," Hogan said.

For the RBA, these results should be welcome news, Hogan added.

"The Judo Bank Manufacturing PMI confirms that the economy is responding to higher interest rates with weaker activity and easing inflation pressures," he said.

While the steep decline in new orders since September is concerning, the overall picture painted by the data is of "a soft landing for the economy with a meaningful easing in inflation pressures," Hogan added.