Business activity in Australia's service sector decelerated in September as inflationary pressures deepened and firms sought to limit costs amid softer growth in new orders.

The seasonally adjusted S&P Global Australia Services PMI Business Activity Index posted at 51.9 in September, down from 53.2 in the previous month, remaining above the 50 no-change mark for the fourth straight month but also marking the slowest rise in activity over the last three months, the index provider said Monday.

The result came as the rates of input cost and output price inflation both increased from August and were above their respective series averages. The consumer services sector experienced the most pronounced rise in input prices amid higher fuel and labor expenses.

Elevated price pressures don't bode well for demand recovery and suggest that the consumer price index might remain higher in the coming months, which could prompt the Australian central bank to retain a hawkish bias, said Jingyi Pan, economics associate director at S&P Global Market Intelligence.

The rate at which the service sector's new business expanded in September was the softest in the three-month growth sequence. However, the growth was broad-based with a fresh rise in new export business as overseas demand rose for the first time in five months.

The tapering growth in new orders also led to a resumption of job shedding, with staffing levels at services firms dropping for the first time since May, marking only the third instance of reduced headcount in five years.

While Australian service providers largely continue to have a positive view on activity over the next 12 months, their degree of confidence fell to a three-month low amid some concerns over the economic outlook and what that might entail for sales. The slide in confidence hints at a potential further waning of growth, Pan said.

Last week, S&P Global data showed production in Australia's manufacturing sector shrinking in September at the sharpest pace in nearly two years as both business and supply conditions deteriorated.