Strong Australian Services Sector Growth A Headache For RBA

By James Glynn

SYDNEY--Activity in Australia's services sector remains upbeat, something that is sure to alarm the Reserve Bank of Australia, which remains engaged in a fight to cool inflation pressures.

According to Judo Bank, the service sector grew at a faster rate toward the end of the first quarter, with business activity expanding at its steepest rate since April 2022.

The seasonally adjusted Judo Bank Australia services PMI business activity index rose to 54.4 in March, from 53.1 in February.

It was the second consecutive monthly expansion in services activity, Judo Bank said.

The RBA has identified the services sector as an area of concern in regards to lingering price pressures. Costs of rent, insurance and electricity are among the factors that could keep inflation elevated for longer than expected.

The central bank has raised interest rates at its fastest pace since the late 1980s in the wake of the Covid-19 pandemic, but it still expects inflation to remain above its target band until the end of 2025.

The services output index rose to a new cyclical high of 54.4 in March, the fourth consecutive month of improvement, with the services output index increasing by 8.4 points, the largest gain in the series outside of recovery from lockdowns, the data showed.

"This is a strong result for the Australian economy," said Warren Hogan, chief economic adviser at Judo Bank. "The Judo Bank Services PMI survey is painting a picture of an economy recovering from a cyclical slowdown in 2023."

The employment index remained at a level indicative of growing demand for labor in March.

"At no stage in this post-pandemic economic cycle has the services employment index fallen below the 50.0 index level, despite soft activity outcomes throughout 2023," Hogan said.

Cost pressures also remain elevated.

The input price index fell slightly to 61.5, the lowest since 2021, but remains above pre-pandemic levels, according to the survey.

"The inflation indicators highlight that the process of reducing inflation from around 4% to 2.5% will be gradual and will require the economy to be on a soft growth trajectory, which does not appear to be the case from these survey results," Hogan said.

Confidence across service industries was up in March and is now at the highest level in a year, the data showed.

Write to James Glynn at james.glynn@WSJ.com

(END) Dow Jones Newswires

April 03, 2024 19:00 ET (23:00 GMT)

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