BNY’s Bob Savage highlights a slowdown in Australian economic activity, with the manufacturing Purchasing Managers' Index (PMI) easing to 50.7 points in May from 51.3 in April. While the PMI remains marginally in expansion territory, underlying conditions in the sector have weakened, as both new and export orders declined and cost pressures persisted at elevated levels [1]. Input costs rose at the second-fastest pace in nearly four years, and output price inflation accelerated to its highest rate since August 2022 [1].
The Melbourne Institute's monthly inflation gauge fell in May, reversing two consecutive month-on-month increases, largely due to lower fuel prices [1]. In the housing market, national home values were unchanged in May, marking the first flat month-on-month result since January 2025. Notably, home values in Sydney and Melbourne declined during the period [1].
Market participants are now pricing in limited further tightening by the Reserve Bank of Australia (RBA), with expectations capped at no more than one additional rate hike for the remainder of the year. This cautious outlook is attributed to weakening consumer sentiment and a loss of momentum in the housing market, particularly if housing costs continue to ease [1].
CONCLUSION
Australia's manufacturing and housing data point to a cooling economy, with persistent inflationary pressures but weakening consumer and housing sentiment. As a result, markets are reluctant to anticipate more than one additional RBA rate hike this year, reflecting a cautious outlook for further monetary tightening.