PMI falls to cyclical lows, inflation remains sticky: Judo Bank

The news: The Australian economy is continuing to cool, but inflation remains sticky and could require slower growth for longer to keep inflation under control, according to a Judo Bank report. The neobank's October's flash purchasing managers index (PMI) fell to recent cyclical lows in October after a brief uptick in September above the neutral 50 level.

The numbers: The composite output fell from 51.5 index points in September to 47.3, a 21-month low. Output was lower in both manufacturing (45.6) and services sectors (47.6), but the pace of the slump was more pronounced in manufacturing, which printed a 41-month low.

The context: The numbers point to marked drops in output and new orders, as demand deteriorated under uncertainty and cost pressures. Despite this, Australia remains on-track for the widely forecast "soft landing", according to Judo Bank's chief economic adviser Warren Hogan. While output and new orders indices would have to deteriorate substantially to be consistent with a broader recession, he said, sticky inflation could require the Reserve Bank to hold the cash rate higher for longer to tame price growth.

What they said: "If we are to avoid recession, Australia will need an extended period of below-trend growth to ensure inflation returns to target by 2025," Hogan said in the report.