Australia Private Sector Activity Contracts as Cost Inflation Hits 3-Year High

Australia’s private sector activity entered a sharp contraction in March, with the Composite PMI dropping to 47.0. The downturn was primarily driven by a significant plunge in the Services PMI, which fell from 52.8 to 46.6, signaling a collapse in service-side demand. Simultaneously, input cost inflation surged to its highest level in three years, largely attributed to supply chain disruptions stemming from the Middle East conflict. These stagflationary signals present a significant challenge for the Reserve Bank of Australia (RBA) as it balances cooling growth against rising costs. Market participants are closely monitoring the impact on the Australian Dollar (AUD), which faces downward pressure amid the deteriorating economic outlook. The combination of contracting business activity and persistent inflation is also weighing on the performance of the ASX 200 index.

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