SYDNEY (Reuters) – Australian business confidence deteriorated further in May to fall below its long-term average, a survey released on Tuesday showed, as sales and profit growth slowed while cost pressures showed signs of re-accelerating.
The National Australia Bank (NAB) survey showed its business confidence index fell one point to +6, slightly below its long-term average, driven by declines in sales and profits, while the employment index rose after a sharp drop the previous month.
The company’s business confidence index fell five points to -3.
“Overall, this is a mixed message for the RBA,” said Alan Oster, chief economist at NAB.
“There are warning signs in the growth outlook but at the same time there are reasons to be very cautious about the inflation outlook and we expect the RBA to keep rates on hold for the time being to weather these competing risks.”
The Reserve Bank of Australia (RBA) kept interest rates on hold at 4.35% for the fourth consecutive session last month but has not yet made any decision on whether to implement or discontinue the policy. The RBA said it was wary of the risk of rising inflation.
Markets expect interest rates to remain at current levels for an extended period of time, with the first rate cut not fully priced in until July next year.
The NAB survey showed cost pressures accelerated again in May.
Quarterly retail price growth rose sharply to 1.6% from 1.0% in the previous month, while labor and purchasing cost increases also rose to 2.3% and 1.9%, respectively, from 1.5% and 1.3% in the previous month.
“We have been warning for some time that the path of inflation going forward is likely to be slow and uneven, and our survey results reinforce this message,” Oster said.
(Reporting by Stella Chiu and Sam Holmes Editing by Sam Holmes)
