Cost Pressures Elevated But Appear To Be Easing

NAB business conditions and confidence both rose in August to their highest since April. They continue to signal that the business environment is currently holding up. There was some easing in cost pressures from elevated levels, which should be good news to the RBA.

• Business Conditions were revised down to 19 in July (from 20) and rose in August to 20. In contrast, confidence was revised up to 8 (from 7) and rose to 10 in August. Forward orders, trading, exporters’ sales and stocks rose on the month.
• Elevated purchase costs continued to be passed on by businesses. While there was an easing in the price of final products measure to 2.4% from 2.6%, it was close to series highs. Retail price inflation remained steady at 3.3%. NAB commented that the slight easing of cost pressures probably reflected some pull-back in commodity prices and the passing of the one-off effect of the minimum wage increase in July.
• In terms of the labour market, firms' labour costs also eased from July’s 4.5% rise to 3.5%, which should be comforting to the RBA, but it is still the highest in the history of the series, apart from July. Employment was revised up in July to 18 from 17 but fell slightly to 16 in the latest survey. While this is a small decline from July’s elevated reading, employment conditions remain elevated (apart from July, at their highest since June 2021).