Services Fall Into Contraction as Private-Sector Activity Shrinks in October, and Prices Keep Rising

Australia’s private sector went backwards at the start of the December quarter, according to S&P Global’s purchasing managers’ surveys, with service providers reporting that higher interest rates and weak confidence were weighing on demand, even as their costs rose faster.

The readings

• Services PMI: 48.5 in October, down from 51.9 in September. It was the first decline in activity since May and the lowest reading in seven months, although the final figure was revised up from the flash estimate of 47.8.
• Composite PMI: 48.2, down from 51.3, indicating a broad-based contraction across manufacturing and services.

Readings below 50 indicate contraction.

What is driving it

S&P Global attributed the deterioration to slower growth in new business and operational constraints. Service providers reported that higher interest rates and subdued market confidence were weighing on demand. Jingyi Pan, economics associate director at S&P Global Market Intelligence, said higher interest rates and weak confidence were “curbing growth in new business”.

The picture was not uniformly weak. New business continued to expand modestly, though at the slowest pace of the current four-month run, and new export business grew a little faster, helped by overseas interest and tourism. Services firms resumed hiring after cutting staff in September, as backlogs of work rose for a fourth straight month and at the fastest pace since May 2022. Business confidence stayed below its long-run average.

The price problem

Inflation pressures intensified even as activity weakened. Higher fuel, freight, labour and other operating costs pushed services input cost inflation to a five-month high, and output charge inflation, the prices firms charge customers, accelerated to its fastest pace in three months, above the survey’s long-run average. Both measures also strengthened at the composite level.

Why it matters

Falling activity alongside rising prices is a difficult combination for policymakers. The Reserve Bank lifted the cash rate to 4.85% on Melbourne Cup Day, 3 November. For businesses, the survey suggests demand is softening while input costs are still climbing, a squeeze on margins heading into the end of the year.

Sources: S&P Global Australia Services and Composite PMI, final October 2026 data, as reported by ActionForex (November 2026) and FXStreet (3 November 2026, UTC).