In the face of persistent inflationary pressures, Australian business conditions displayed remarkable resilience throughout August, characterised by notable improvements in sales, profits, and employment. The findings, unveiled in a survey by National Australia Bank Ltd (NAB) on Tuesday, suggest a compelling case for further monetary tightening to curb inflation.
The NAB survey revealed that its index of business conditions surged to +13 in August, a notable uptick from an upwardly revised +11 in July. Concurrently, the confidence index, known for its volatility, inched up by 1 point to reach +2.
Employment metrics provided a source of optimism, with the employment index gaining 3 points to land at +9. Similarly, the sales index witnessed a 1-point increase, reaching +18, while profitability registered a commendable 2-point rise, standing at +13.
One of the significant highlights of the survey was the forward orders indicator, which offers insights into the demand outlook. This indicator, which had shown sluggishness in recent times, saw a modest improvement, rising by one point to attain a flat reading. Furthermore, capacity utilisation, a metric closely monitored for its historical significance, edged above 85%, nearing historical highs.
Alan Oster, Chief Economist at NAB, commented on these developments, stating, “There was a notable rise in the employment index, which is well above the long-run average, suggesting labor demand has remained strong into the second half of the year. Price growth also remains elevated, which reflects the considerable cost pressures businesses are facing, as well as the ongoing resilience of demand… We expect inflation to remain elevated in Q3.”
Indeed, the past three months saw a 3.2% increase in labor costs, a slight easing from the previous reading of 3.7%. Meanwhile, purchasing costs experienced a marginal uptick, rising to 2.9% from 2.8%.
The Reserve Bank of Australia (RBA) has opted to pause its rate hikes for the third consecutive month, following a substantial 400 basis points increase in the cash rate since May of the previous year. Nonetheless, the RBA has issued a cautionary note, indicating the possibility of further tightening measures being necessary to curb inflation.
While a majority of economists anticipate a potential RBA rate hike by the end of the year, market sentiments suggest that the tightening cycle may have reached its zenith. The balance between these contrasting views sets the stage for ongoing debate and policy deliberations.
In summary, the robust performance of Australian business conditions in the face of elevated inflationary pressures underscores the nation’s economic resilience. The prospect of further monetary tightening remains a topic of keen interest and will undoubtedly influence Australia’s economic trajectory in the coming months.