Australia business conditions soften in May, cost pressures pick up

According to a survey conducted by the National Australia Bank (NAB), Australian business conditions in May fell below their long-run average due to slower growth in sales and profits. The survey revealed that the index of business conditions declined by 1 point to +6, just below its long-run average. This was primarily driven by declines in sales and profits indices, although the employment index saw a slight increase following a previous drop. The survey also showed that cost pressures were showing signs of re-accelerating. The NAB’s business confidence index also fell by 5 points to -3. NAB chief economist, Alan Oster, stated that the overall message from the survey was mixed for the Reserve Bank of Australia (RBA). He mentioned that while there were warning signs regarding the growth outlook, there were also reasons to be cautious about the inflation outlook. As a result, Oster expects the RBA to maintain interest rates at their current levels as they navigate through these contrasting risks.
The Reserve Bank of Australia (RBA) decided to keep interest rates unchanged at 4.35% for the fourth consecutive meeting last month, but it has not made any definitive decisions on policy. The RBA emphasized its watchfulness regarding any potential risks of rising inflation.

Market analysts now anticipate that interest rates will remain at their current level for a longer period of time, with the first rate cut not expected until July of next year.

According to the NAB survey, cost pressures have increased again in May. Quarterly growth in retail prices rose from 1.0% to 1.6%, while both labor costs and purchasing costs also experienced an uptick to 2.3% and 1.9%, respectively, up from 1.5% and 1.3% previously.

NAB Chief Economist, Alan Oster, stated, “We have been cautious for some time that inflationary pressures will likely progress gradually and unevenly, and the survey results underscore this perspective.”

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