Australia’s Composite Output Falls to 48.2 as Services Contract in October
Key Facts
Australia’s composite output index returned to contraction in October, falling to 48.2 points from 51.3 in September, according to purchasing managers’ index data. A reading below 50 points indicates a decline in activity from the previous month. The drop came as services activity contracted for the first time since May, reaching a seven-month low. This puts weak activity against continued price pressures reported by service companies. Meanwhile, total new business continued to increase, reflecting a divergence between the pace of activity and the demand companies are receiving.
New business growth slowed in October, but the total continued to rise, supported by external demand, according to the survey as reported by Trading Economics. The report attributed this support to stronger interest from overseas customers and an increase in tourism activity. Weak activity did not prevent companies from resuming hiring; service companies returned to hiring workers after cutting staff at the end of the third quarter. These indicators show that the contraction in activity coincided with continued growth in total orders, albeit at a slower pace. The return to hiring also coincided with an increase in companies’ backlogs, according to the survey details.
On the cost side, fuel, freight, labour and operating expenses pushed input price inflation to a five-month high in October. The prices charged by service companies rose at their fastest pace in three months, exceeding the survey’s long-run average. This means companies faced mounting pressure on operating costs alongside a faster rise in the prices they charge customers. These signals matter as official Australian inflation rose in September. Consumer price index inflation reached 4.3% in the 12 months to September, compared with 4.0% through August, according to the Australian Bureau of Statistics.
Annual trimmed mean inflation rose to 3.6% in the 12 months to September, from 3.5% through August after the previous reading was revised. On a monthly basis, the consumer price index rose 0.8% in September in the original reading and 0.6% on a seasonally adjusted basis, according to the bureau. These official figures are for September, while the purchasing managers’ indexes reflect business conditions in October. Against this backdrop, the monetary policy board raised its cash rate target by 25 basis points to 4.85%, effective 4 November 2026. The monetary tightening comes as October data show output declining and input costs and service prices accelerating.
The Reserve Bank of Australia revised its inflation forecasts higher, citing a higher path for energy prices amid the continuing conflict in the Middle East and domestic capacity pressures greater than it estimated in August. The bank expects headline and underlying inflation to remain above 3% through the end of 2027, before returning to the midpoint of its 2–3% target range in mid-2028. It also expects the unemployment rate to edge above 5% at the end of 2028. The Australian Bureau of Statistics is scheduled to release October consumer price index data on 25 November 2026 at 11:30 a.m. Australian Eastern Daylight Time. That release will provide a more recent official inflation reading after September’s data, at a time when signals of weak activity and price pressures are diverging.