SYDNEY — Activity in Australia’s services sector contracted in July, but there remains a problem with inflation that may add to existing concerns at the Reserve Bank of Australia that the sector could keep a fire burning under price pressures in the next year.
The Judo Bank Australia Services Performance of Manufacturing Index fell to 47.9 in July from 50.3.
The reading was the lowest since December and follows a decision by the RBA to keep the official interest rates on hold for a second consecutive month after inflation cooled more than expected in the second quarter.
“This marks the third monthly fall in the services activity index, confirming that the economy is on track for a soft landing over the next year,” said Warren Hogan, chief economic advisor at Judo Bank.
However, the July inflation indicators in the services index rose with final prices up 2.4 points to the highest level since January, the data showed.
This will be of some concern for the RBA as the index is suggesting that services price inflation across the economy is unlikely to fall much below 4% to 5% over the next six months, Hogan said.
The new financial year has brought with it a series of price increases at a higher pace than was evident in the second quarter, he added.
Overall, services business activity had its biggest monthly fall since the start of the RBA’s aggressive tightening cycle in May 2022, the data showed.