Australia’s business conditions boom in March, inflation rises

SYDNEY (Reuters) – Australian business conditions rose sharply in March as firms saw strong sales and labor conditions, while rising costs pushed retail prices higher in a worrying sign for inflation.

Tuesday’s survey by National Australia Bank (OTC:) (NAB) showed that its business conditions index doubled to +18 in March, while confidence added 3 points to +16.

This encouraging result will be welcomed by Prime Minister Scott Morrison, who is in the middle of a tough election campaign.

Survey sales measure increased 13 points to +24, while profitability increased 8 points to +13. The employment index added 4 points to +12, suggesting that the unemployment rate would soon fall below 4% for the first time since the early 1970s.

“The recovery was primarily driven by the retail sector, which saw growth of 23 points, as well as entertainment and personal services and finance, business and property,” said Alan Oster, NAB’s chief economist.

“Confidence jumped in the transportation, construction, and entertainment and personal services sectors.”

Forward orders and business investment measures also accelerated, indicating that the recovery will continue.

Inflation remained a headache, with procurement costs and labor costs rising at the fastest pace in survey history, which in turn pushed up retail prices.

“The continued increase in price growth in recent months suggests that a strong Q1 CPI reading is likely to continue later in the month,” Oster said.

Analysts have warned that the March quarter consumer price indices will surprise on the higher side and put pressure on the Reserve Bank of Australia (RBA) to start raising interest rates in early June.

A separate survey of ANZ consumers on Tuesday showed its sentiment index rose 1.3% last week due to a slight drop in petrol prices, although it remains below average.

Inflation expectations remained high at 5.8%, reflecting cost of living pressures from petrol, food and housing.

All prices have yet to deter shoppers, with the measure of CBA’s household spending intentions jumping 9.2% in March led by travel, transportation and retail.

Spending strength, combined with a 13-year low for unemployment, suggests the economy put in a solid performance in the first quarter.

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