Australian business conditions hold strong in Aug, cost pressure elevated
A crane lifts building materials in front of scaffolding at a construction site in central Sydney, Australia. REUTERS/David Gray/file photo
SYDNEY – 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 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 utilization edged back above 85 percent, nearing historical highs.
READ: Australian July business conditions hold firm, costs jump anew
“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,” 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.”
READ: Australia inflation slows more than expected in Q2
Indeed, growth in labor costs was 3.2 percent higher in the past three months, easing a little from the previous reading of 3.7 percent, while purchasing costs picked up to 2.9 percent from 2.8 percent.
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.
READ: Reserve Bank of Australia to deliver final rate hike in Q4, economists say
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.
