By James Glynn
SYDNEY–Australian business confidence and conditions both eased in May as the Reserve Bank of Australia responded to surging inflation and commenced what is expected to be a lengthy period of interest-rate increases.
A monthly survey of business by the National Australia Bank on Tuesday showed business conditions fell to 6 points in May from 10 points in April, while business confidence dropped to 16 points in May from 19 points in April.
“Lower confidence in May likely reflects a range of risks on the horizon,” NAB chief economist Alan Oster said. “Businesses are facing a new environment of higher inflation, rising interest rates, and risks to global growth. However, confidence is still at a fairly robust level all things considered.”
While confidence remains robust overall, the coming months could bring rapid interest-rate increases as the RBA moves to tackle inflation that likely won’t peak until well into the second half of this year–or even 2023.
The RBA raised its official cash rate by 25 basis points in May and 50 basis points in June. The official cash rate is at 0.85%, with money market traders now pricing in a rise to 4.0% by April 2023.
With the unemployment rate close to 50-year lows, labor costs rose 2.5% in May, down from 3.0% growth in April, the survey showed.
“There was a slight easing in cost growth in May but inflation remains a key challenge,” Mr. Oster said.
“Businesses continue to report elevated price inflation, and while there is little evidence so far of a major response in terms of lower demand, that remains a risk that we will be watching closely over coming months,” he said.
Write to James Glynn at firstname.lastname@example.org