Australia’s manufacturing sector showed signs of a slower contraction in August, as the Judo Bank Australia Manufacturing PMI rose to 48.5 from 47.5 in July. Despite this improvement, the sector has remained in contraction for the seventh consecutive month, with the reading still below the crucial 50-point mark, indicating ongoing deterioration.

The data, however, raised fresh concerns about inflation. Both input and output prices in the manufacturing sector increased in August, signaling persistent inflationary pressures. Warren Hogan, economic advisor to Judo Bank, highlighted that input prices remain higher than where they were for much of 2023, with no signs of cost relief in sight.

Moreover, final prices in the sector edged closer to a 55.0 index reading in August, a level that could lead to the highest inflation readings in more than a year if sustained. Hogan attributed some of these rising costs to higher international transport and logistics expenses, which appear to be continuing into the new financial year.

The ongoing inflation warnings come as the Reserve Bank of Australia remains cautious about the risks of elevated inflation. The central bank has been closely monitoring price pressures, with concerns that they could intensify in the near future.

As the manufacturing sector struggles with these challenges, the RBA’s stance on inflation will likely remain a key focus, especially as the broader economy grapples with these persistent cost pressures.