Australian Private Sector Growth Slows Amid Intensifying Cost Pressures

In August, the private sector in Australia maintained growth but faced concerning signs of intensifying cost pressures. The composite PMI index recorded 52.5, a slight drop from July's 53.2, indicating three consecutive months of expansion. However, the unexpected acceleration in input price inflation is a worrisome signal for policymakers. This cost pressure intensified more prominently in manufacturing, driven by increases in fuel, freight, and raw materials. Firms responded by limiting their own price inflation rather than fully passing on increased costs to customers, suggesting margin compression that could impact corporate earnings before showing up in headline inflation data. Business confidence reached its highest level in six months, and new export orders showed improvement for the first time since March due to stronger global demand. These indicators suggest businesses may become more aggressive in testing their pricing power if cost pressures persist.