Australia business conditions surge in March, inflation runs hot

By Wayne Colep

SYDNEY Reuters – A measure of Australian business conditions picked up sharply in March as firms saw strong sales and labour conditions, while surging costs pushed retail prices higher in a worrying sign for inflation.

Tuesdays survey from National Australia Bank NAB showed its index of business conditions doubled to 18 in March, while confidence added 3 points to 16.

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

The surveys measure of sales jumped 13 points to 24, while profitability rose 8 points to 13. The employment index added 4 points to 12, suggesting the jobless rate will soon drop under 4 for the first time since the early 1970s.

“The improvement was largely driven by the retail sector, which saw conditions rise 23 points, as well as recreation & personal services and finance, business & property,” said NAB chief economist Alan Oster.

“Confidence jumped in the transport, construction, and recreation & personal services sectors.”

Measures of forward orders and business investment also picked up, suggesting the recovery would continue.

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

“The continued escalation in price growth over recent months suggests a strong Q1 CPI reading is likely when released later in the month,” said Oster.

Analysts have been warning the March quarter consumer price index would likely surprise on the high side and put pressure on the Reserve Bank of Australia RBA to start raising interest rates as early as June.

A separate survey of consumers from ANZ out Tuesday showed its sentiment index picked up 1.3 last week as petrol prices cooled just a little, though it remains below average.

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

All that price froth has yet to deter shoppers with CBAs measure of household spending intentions jumping 9.2 in March to a record high, led by travel, transport and retail.

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