Business activity in Australia explodes in July, costs rise

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SYDNEY (Reuters) – A measure of Australian business confidence rebounded in July as sales and profits held up surprisingly well in the face of rising interest rates and high inflation, although companies also reported headwinds. record costs in a context of supply constraints.

Tuesday’s survey from the National Australia Bank Ltd (NAB) showed its business conditions index climbed 6 points to +20 in July, well above its long-term average.

Its confidence measure jumped 5 points to +7, reversing June’s decline and leaving it just above the long-term average.

“Strong conditions remained broad-based across states and industries, with a notable recovery in the construction sector,” said Alan Oster, chief economist at NAB Group.

“Overall, the survey suggests that despite global and domestic economic headwinds, demand has remained strong – and inflationary pressure continues to build, suggesting that inflation has yet to peak. .”

The survey’s purchasing cost measure hit a record high of 5.4%, while labor costs rose 4.6% at a quarterly pace. Retail price growth accelerated to 3.3% as commodity prices rose 2.7%.

Soaring inflation has led the Reserve Bank of Australia (RBA) to hike four times since early May, raising rates 175 basis points to 1.85% and warning of more to come.

Markets are tilting towards another 50 basis points in September and rates as high as 3.25% by the end of the year.

This hawkish outlook has soured consumers, with two surveys released on Tuesday showing sharp declines in confidence amid pessimism over the economic outlook.

Still, the NAB survey continues to show resilience in real demand, with its sales measure jumping 8 points to an all-time high of +27 in July.

Profitability rose 4 points to +17 and the employment index gained 6 points to +17, a strong reading that suggests the unemployment rate could fall further after already hitting a 48-year low of 3 .5%.

Businesses also appeared to be operating at full capacity, with capacity utilization hitting a record 86.7%, down from 84.9% in June.

(Reporting by Wayne Cole; Editing by Sam Holmes)

Copyright 2022 Thomson Reuters.

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