Australia’s manufacturing sector continued its expansion from the COVID-19 disruptions at the turn of the year and is now growing at its fastest pace since since July 2015.
The Australian Industry Group performance of manufacturing index rose by a further 2.8 points in April to 58.5.
It was the third consecutive month above the key 50-point mark, which separates growth from contraction.
However, Ai Group chief executive Innes Willox said manufacturing is still constrained by difficulties finding workers, particularly in skilled occupations, as well as input price pressures and rising wages costs.
“New orders increased further in April and, with many businesses feeling capacity constraints and difficulties in securing inputs and staff, the pressures on filling orders are set to continue in coming months,” Mr Willox said.
The report comes ahead of an expected increase in the official cash rate by the Reserve Bank of Australia, the first rise in more than a decade, and follows last week’s exceptionally strong inflation figures.
Financial markets are fully priced for a 0.15 per cent rise in the cash rate to 0.25 per cent when the RBA board meets on Tuesday after annual inflation surged to 5.1 per cent.
The more interest rate-sensitive underlying inflation rate jumped to 3.7 per cent, well above the RBA’s two to three per cent target.
The anticipated modest increase in the cash rate from a record low 0.1 per cent is expected to be followed by increases of 0.25 per cent in subsequent months.
“Having a near-zero cash rate when unemployment is four per cent and inflation is over five per cent makes no sense,” AMP chief economist Shane Oliver said.
“The experience from the late 1960s and 1970s tells us the longer high inflation persists the more inflation expectations will rise, making it even harder to get inflation back down again without engineering a recession.”
While rising interest rates may have a bearing on the election campaign, as they did in 2007 when then Liberal leader John Howard lost power, Prime Minister Scott Morrison still has a falling unemployment rate as part of his economic credentials.
March’s federal budget forecast the jobless rate falling to 3.75 per cent in coming months, the lowest in almost 50 years.
Backing the decline has been persistent strong demand for workers, as seen through job advertising.
ANZ will release its latest job ads series for April later on Monday.
