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NAB business survey reveals uptick in inflation-related measures

In something of a surprise, the National Australia Bank’s (ASX:NAB) latest monthly business survey not only confirmed continuing resilience in business conditions and confidence but also highlighted an uptick in what it called “inflation-related measures.”

The NAB economics team says that uptick challenges “expectations that the economy would continue to cool as 2023 wears on.”

The latest survey found that while business conditions eased 1pt to +10 index points in July, trading conditions (+16 index points), employment (+6 index points), and profitability (+10 index points) were all steady. Business confidence rose 2pts to +2 index points.

“Business conditions continued to show resilience in July and have been broadly steady in the past couple of months at above-average levels” according to NAB Chief Economist Alan Oster. “Business confidence also picked up in July to be back in positive territory as well, although confidence remains low.”

“Labour cost growth rose sharply, likely reflecting wage rises taking effect on 1st July including minimum and award wage changes. There was also a further rise in purchase cost growth in the month, possibly reflecting energy prices.

In a sign that some of these pressures may have been immediately passed through, overall price growth also lifted, with retail price growth jumping to 2.6% in quarterly terms and recreation & personal services price growth up to 2.9%.

Price and cost growth rose sharply in the month. Labour cost growth rose to 3.7% in quarterly equivalent terms (up from 2.3% in June) and purchase cost growth rose to 2.6% (2.2% in June).

Final price growth reached 2% (1% in June), with the retail component rising to 2.6% (1.4% in June) and recreation & personal services accelerating to 2.9% (1.2% in June).

“Labour cost growth rose sharply in July, likely reflecting wage rises taking effect on 1st July including minimum and award wage changes,” said Mr Oster.

“Labour cost growth was strongest in recreation & personal services, transport & utilities, and retail, which aligns with where we would expect minimum and award wage workers to be most common.”

But he said that it was important to note that underlying respondent-level data shows the relationship between cost increases and price rises is not simple, with many firms reporting large increases in labour costs but no change in prices.

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

“Key measures of demand, profitability, and employment all held steady at above-average levels and capacity utilisation also rebounded to be well above average at 84.5%.

“Confidence remained low, as did forward orders, but both measures have been weighed down by deeply negative readings in the retail sector. “Notably, retail firms continued to report strong current conditions despite the weakness in leading indicators in recent months.” he added.