Australian business conditions hold strong in Aug, cost pressure elevated

SYDNEY (Reuters) – Australian business conditions proved resilient yet again in August with a broad uptick in sales, profits and jobs, while inflationary pressures remained elevated, a result that could add to the case for more monetary tightening to tame inflation.

A survey from National Australia Bank (OTC:) Ltd (NAB) released on Tuesday showed its index of business conditions rose to +13 in August, from an upwardly revised +11 in July. Its volatile measure of confidence bounced 1 point to +2.

The survey’s measure of employment gained 3 points to +9, while the sales index picked up 1 point to +18 and profitability rose 2 points to +13.

Forward orders, an indicator for the demand outlook which has been sluggish, rose one point to a flat reading, while capacity utilisation edged back above 85%, nearing historical highs.

“There was a notable rise in the employment index which is well above the long-run average, suggesting labour demand has remained strong into the second half of the year,” said NAB’s chief economist Alan Oster.

“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, growth in labour costs was 3.2% higher in the past three months, easing a little from the previous reading of 3.7%, while purchasing costs picked up to 2.9% from 2.8%.

The Reserve Bank of Australia has paused its rate hikes for a third straight month, having jacked up the cash rate by a whopping 400 basis points since May last year, but it warned more tightening could be required to bring inflation to heel.

A majority of economists still expect the RBA could hike one last time by the end of the year, while markets suspect the tightening cycle could be well over.

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