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War Triggers Manufacturing Slump and Inflation Spike in Australia
1 Apr
Summary
- Australian manufacturing PMI dropped to 49.8 in March, indicating contraction.
- Input costs surged due to higher oil prices, reaching a 3.5-year inflation peak.
- The conflict in the Middle East significantly impacted supply chains and costs.
Australia's manufacturing sector contracted in March for the first time since October, as indicated by the S&P Global manufacturing PMI dropping to 49.8 from 51.0. This downturn was attributed to weakened demand and heightened cost pressures, exacerbated by the escalating conflict in the Middle East.
Manufacturers reported a resurgence in falling new orders and a second consecutive month of decreased output. Employment and purchasing activity were also curtailed by firms. The conflict's impact on global oil prices led to a sharp increase in input costs, with nearly 40% of firms reporting higher prices.
The intensified inflation rate for inputs reached its highest in three-and-a-half years, with freight and fuel costs being major contributors. S&P Global noted that the sector's recovery in the second quarter hinges on the duration of the Middle East conflict.
This situation presents challenges for the Reserve Bank of Australia's monetary policy. Traders are anticipating further interest rate hikes to combat inflation. Despite the contraction, new export orders increased significantly, and Australia is projected to benefit from higher commodity prices.
