The survey has an uncomfortable mix for policymakers: demand and output are contracting, but input costs and selling prices are rising faster. Firms cited higher interest rates among the reasons for weaker orders, while the pricing data suggest inflation pressure in the goods sector is building rather than fading, which complicates any case for policy relief. The Middle East war is feeding directly into Australian factory costs through fuel, freight and delivery delays, so further escalation around the Strait of Hormuz poses an upside risk to goods inflation. For the Australian dollar, the release adds to signs of softer domestic activity without offering a clear disinflation signal.---RBA expected to raise its cash rate on Tuesday, November 3, 2026:RBA set for back-to-back hike after hot CPI, says Natixis’ Garcia Herrero---Australian factories are being squeezed from both sides, with orders shrinking at the fastest pace in nearly two years while war-related shipping delays push costs and prices higher.Summary:The S&P Global Australia Manufacturing PMI held at 49.6 in October, a second month below 50 and the joint-lowest since December 2024New orders fell at the steepest rate in almost two years, which firms blamed on rising prices, higher interest rates and weaker demand; export orders fell only marginallyEmployment fell for a second month, at the fastest pace in seven months, and purchasing and inventories were cutDelivery times lengthened at one of the sharpest rates since mid-2022, partly due to shipment delays linked to the Middle East war and port congestionInput costs rose at the fastest pace since June, and selling prices rose more quickly for the first time in five months, at an above-average rateBusiness confidence improved from September’s low but stayed below its long-run averageAustralia’s manufacturing sector contracted for a second straight month in October, as the sharpest drop in new orders in almost two years coincided with worsening supply conditions and rising costs, according to S&P Global survey data released on Sunday at 2200 GMT (1700 US Eastern).The S&P Global Australia Manufacturing PMI was unchanged at 49.6, below the 50 mark that separates expansion from contraction and level with its lowest reading since December 2024. Output fell at the same solid pace as in September, which S&P Global described as one of the steepest declines since late 2024.Demand was the main weakness. New orders fell at the fastest rate since December 2024, and survey respondents cited rising prices, higher interest rates and a deterioration in underlying demand. Export orders fell for a second month, though only marginally. Manufacturers responded by cutting staff at the fastest pace in seven months, reducing purchasing and running down both input and finished goods inventories. Backlogs of work fell more quickly as spare capacity increased.Supply conditions also deteriorated. Suppliers’ delivery times lengthened at one of the sharpest rates since mid-2022, with firms pointing to shipment delays linked in part to the Middle East war, as well as port congestion. Those delays added to shipping costs, contributing to the fastest rise in input prices since June, alongside higher raw material, supplier and fuel costs.Manufacturers passed some of that pressure on to customers. Selling prices rose at a faster pace for the first time in five months, at a rate above the series average.An economist at S&P Global Market Intelligence described the start of the fourth quarter as a double hit for Australian manufacturers, with supply constraints adding to deteriorating demand.There was a modest bright spot in sentiment. Firms remained positive about output over the next 12 months, and confidence recovered somewhat from September’s low, though it remained below its long-run average. Whether that improvement holds is likely to depend on how quickly shipping disruption eases and whether demand stabilises as borrowing costs and prices weigh on customers. This article was written by Eamonn Sheridan at investinglive.com.