Asia Flash PMIs Diverge as Rates, Inflation Shape Private-Sector Activity

By Fabiana Negrin Ochoa and James Glynn

Gauges of private-sector business activity in major Asian economies diverged this month as momentum in Australia stalled while India improved.

Flash purchasing managers indexes compiled by S&P Global suggest that businesses in India are faring better than counterparts in Australia and Japan at the start of the fourth quarter as the war in the Middle East fuels cost pressures and higher rates.

On one end of the spectrum was Australia, which registered a fresh contraction in private-sector output in October.

S&P Global's seasonally adjusted flash Australia PMI composite output index fell to 47.7 in October from 51.3 in September, dropping below the neutral 50 mark separating growth from contraction.

Australian companies attributed the downturn to both the impact of higher prices and higher interest rates eroding demand, said Jingyi Pan, economics associate director at S&P Global Market Intelligence. Business confidence took a hit from concerns about the economic outlook and more challenging operating conditions.

Worryingly, the PMI price data for Australia indicated that inflation could remain elevated in the coming months, Pan said.

That comes as the Reserve Bank of Australia warned that the inflation outlook has become "materially worse," prompting heightened speculation that interest rates will be raised further in November.

The RBA has already raised interest rates four times since the start of the year as inflation stayed well above target.

India's PMI pointed in the opposite direction, signaling improved business activity in October as inflationary pressures softened further.

The HSBC Flash India PMI composite output index compiled by S&P--which covers manufacturing and services--rose to 56.7 from 55.9 in September.

"That said, the rate of increase remained below the average seen across 2026 so far," S&P said.

The Reserve Bank of India has tightened policy settings only once this year, thanks in part to a low inflation starting point when the war first broke out in late February. However, it changed its policy stance to "calibrated tightening"--a pivot signaling that rate cuts are off the table near term and any move ahead can be only a hike or a pause, depending on how conditions evolve.

Japan's PMI reading was in the middle, with overall business activity growth flat from September.

At 52.3, the flash PMI headline number for Japan stayed above the neutral threshold for a 19th straight month in October but remained weaker than the average for the year to date, S&P said.

The growth in new orders softened across Japan's private sector, with sales growth among goods producers at the slowest since March, while services momentum picked up but only modestly.

"Inflation remains a key downside risk to the private sector, as overall input cost inflation edged higher," said Usamah Bhatti at S&P Global Market Intelligence.

The Bank of Japan has raised interest rates to the highest level since 1995, so it will be important to monitor how domestic demand conditions evolve in that environment, the economist said.

Japan's central bank is widely expected to hold steady next week as it gauges the impact of prior hikes, before resuming tightening again.

Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com and James Glynn at james.glynn@wsj.com

(END) Dow Jones Newswires

October 23, 2026 03:06 ET (07:06 GMT)