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Business conditions ease, signal disinflation

By Charbel Kadib
1 minute read

The latest business indicators have pointed to further easing in cost pressures, supporting the Reserve Bank’s latest rate verdict. 

According to NAB’s Monthly Business Survey, business conditions eased for the second consecutive month, down 2 index points in March to +16. 

The result was underpinned by weaker employment conditions (down 2 index points) and profitability (down 1 index point), and flat trading conditions. 

But NAB chief economist Alan Oster said despite weakness over the past few months, business conditions remain stronger than the long-run average. 


“Business conditions have been resilient, slowly edging lower over the past few months but remaining well above their long-run average,” he said. 

“Trading conditions are particularly elevated, indicating that businesses continue to experience strong demand, and conditions are generally strong across states and sectors.”

Meanwhile, business confidence improved but remained in negative territory (-1 index point), buoyed by an 8-point increase in confidence across the manufacturing sector but offset by declines across mining and construction.

Business confidence remained negative across the retail, wholesale, and finance industries. 

“Confidence appears to have stabilised, but it remains below average at -1 index point,” Mr Oster added.

“Confidence was particularly poor in retail and wholesale, likely reflecting that firms are concerned about how much longer consumer spending will hold up.”

Inflationary indicators also eased, with price and cost growth slowing. Labour costs grew 1.9 per cent, down from 2.6 per cent in February, and purchase cost growth slowed to 1.8 per cent, down from 3 per cent. 

Overall price growth fell to 1.2 per cent, down from 1.6 per cent, with retail inflation easing to 1.6 per cent, down from 2 per cent.

“There are some encouraging signs that some of the upstream cost pressures that have driven inflation to date are now easing considerably, particularly around non-labour inputs,” Mr Oster said. 

“Labour cost growth has also eased from its July peak, but with a very tight labour market the outlook wage pressure could remain a factor.

“Importantly, output price growth in key consumer facing sectors like retail and recreation and personal services also eased in March.”

Reflecting on the overall data, Mr Oster said the result suggests inflationary pressures are easing but remain a long way from the Reserve Bank of Australia’s (RBA) 2–3 per cent target range. 

NAB’s latest monthly business survey comes just a week after the RBA opted to pause its monetary policy tightening cycle, holding the official cash rate at 3.6 per cent. 

The halt, which followed 10 consecutive hikes since May 2022, aimed to provide the RBA with “additional time” to assess the impact of 3.5 per cent in cumulative increases to the cash rate. 

“The board recognises that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt,” he said.

Governor Philip Lowe acknowledged global inflation “remains very high”, but said in Australia, the latest data suggests inflation has peaked and growth has slowed.

The statement also referenced recent market volatility in response to banking collapses in the United States and the demise of Swiss lender Credit Suisse.

However, governor Lowe noted the local labour market “remains very tight”, contributing to continued wages growth — albeit less pronounced.

As such, the RBA remains open to actioning additional interest rate hikes in the near term.

“The board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target,” governor Lowe added. 

“…In assessing when and how much further interest rates need to increase, the board will be paying close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

Business conditions ease, signal disinflation

The latest business indicators have pointed to further easing in cost pressures, supporting the Reserve Bank’s latest rate verdict. 

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