Australian July business conditions hold firm, costs jump anew

SYDNEY  – Australian business conditions again proved solid in July with sales, profits and employment all above average, while a spike in labor costs and prices suggested inflationary pressures had yet to abate.

A survey from National Australia Bank Ltd (NAB) released on Tuesday showed its index of business conditions dipped to +10 in July, from an upwardly revised +11 in June. Its volatile measure of confidence bounced three points to +2.

The survey’s measure of sales held firm at +16 in July, while the employment index stayed at +6 and profits at +10. Forward orders, a leading indicator of demand, rose one point to -1.

“Business conditions continued to show resilience in July and have been broadly steady in the past couple of months at above-average levels,” said NAB’s chief economist Alan Oster.

In a worrying sign for the inflation outlook, labor costs jumped to 3.7 percent in quarterly terms, likely reflecting mandated rises in minimum and award wages.

Purchase costs also picked up amid a sharp increase in electricity prices, while quarterly growth in retail prices almost doubled to 2.6 percent.

That could bode ill for the next official reading of consumer prices, which had shown a welcome easing in inflation in the second quarter.

The Reserve Bank of Australia has been counting on a continued slowdown in inflation as it decided to skip another chance to raise rates at its August policy meeting last week.

“The reality is that firms’ pricing decisions are affected by many factors, including costs, the strength of demand, and the broader economic outlook,” said Oster.

“Nonetheless, the survey results highlight that upside pressures to inflation remain considerable, despite the improvement seen in the Q2 CPI release.”