Business

Services expand by keeping prices low: PSI

Extra discounts appeared to help Australian services industry activity expand for a second month. (AAP)

Consumers benefited from cheaper prices as the services industry expanded for the second month in a row in June, a survey of companies suggests.

Consumers were offered cheaper prices in June as the services industry doubled down on discounts to ride a second consecutive month of expansion, a survey of Australian companies suggests.

The Ai Group's Performance of Services Index released on Wednesday recorded growth in the sector during the month although the pace of expansion was weaker than in May.

The PSI measure dipped by 0.3 points in June to 52.2, remaining above the 50-point mark separating expansion and contraction in activity.

"Sales were up in the month although this was in part due to further discounting - continuing an extended period of price contraction across the sector," Ai Group chief executive Innes Willox said.

The Ai Group's report noted the "rate of decline in selling prices accelerated again in June", continuing a slide that has been apparent for most of the past year with the exception of a brief period of stability in December 2018.

"The constraint on selling price increases is evident across the business-oriented and consumer-oriented sectors, with both segments reporting weak selling prices in June."

The monthly PSI summary report said companies had little choice but to keep prices low.

"In recent months, some respondents have reported that they have directly lost sales or customers as a result of trying to increase their prices. They are therefore wary of further attempts to raise their prices at present."

The PSI, compiled from responses of about 200 companies, suggested the retail sector contracted for the seventh month in a row in June.

Some retailers reported a "lack of stimulatory seasonal events to boost local consumer spending" during June and the Ai Group said most winter school holidays and sales were due to start in July.

The monthly summary said the pace of activity in the hospitality sector - which includes cafes, restaurants and accommodation - was unchanged from the previous month at 52.7 points.

"Some noted an increase in local competition which suggests new businesses may have opened in their area," the report commented.

The survey results indicated new orders increased in June but services industry jobs fell following a rise in May.

"While service businesses experienced an encouraging lift in new orders in June, this was in part due to the anticipation of a tax cut-linked lift in demand," Mr Willox said.

"At the same time, the loss of momentum in the labour market - with employment across the sector moving into contraction - points to the importance of the further income tax measures announced in the federal budget."

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