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While inflation remains high, business costs eased in March and brought some reprieve for businesses.
According to NAB’s monthly business survey for March 2023 purchase cost growth, such as costs of materials and non-labour inputs, dropped down to 1.8 per cent for the quarter from 3 per cent in February.
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Overall, price growth reached 1.2 per cent, down from 1.6 per cent, which could continue to ease inflationary pressures, which fell for the second consecutive month to 6.8 per cent, in February.
“The moderation in these cost pressures is a positive sign, but the key question remains how quickly these easing pressures will flow through to the prices faced by consumers,” NAB’s senior economist Brody Viney said.
“This will depend on a range of factors including the strength of demand, which has so far been resilient.”
Looking at labour costs, the NAB business data suggested there was a gradual easing in labour cost growth over the past eight months.
However, overall labour cost growth averaged 2.3 per cent in quarterly equivalent terms over the course of Q1 – well above the pre-pandemic average of 1.1 per cent.
“The elevated rate of labour cost growth likely reflects a combination of ongoing strength in employment and hours as well as underlying hourly wage growth in a tight labour market.
“Still, the rate of price growth and underlying pressures remains well above ‘normal’ levels, and any moderation in inflation is likely to be gradual with much further to go to bring inflation down to the RBA’s target band.”
In the survey, overall there had been less moderation in price growth in recreation & personal services, which averaged 1.6 per cent across the first quarter results.
Mr Viney added this likely reflects the strong ongoing rebound in services consumption and would be a critical component that policymakers, including the RBA, will be watching closely over coming months.
Business confidence lifts
As cost price pressures ease slightly, and trading conditions remains “elevated”, the data showed that business confidence rose 3 points to -1 index.
The lift in confidence was led by manufacturing (up 8pts), while mining and construction edged lower.
In trend terms confidence was still negative in retail, wholesale, and finance, business & property but confidence was positive in other sectors.
ANZ’s data reiterated NAB’s research and added that confidence rose across most of the country, but remained below long-run average levels, with Western Australia being the only state to show negative results.
Meanwhile, mortgage confidence has surged following the Reserve Bank’s decision to break its streak of 10 consecutive rate hikes this month, holding the cash rate at 3.60 per cent.
The Westpac Melbourne Institute Consumer Sentiment Index has revealed the consumer sentiment index lifted by 9.4 per cent in April to 85.8.
For more insights on business finance, keep an eye out for the May edition of The Adviser magazine on SME lending.
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