Australian business confidence rebounds despite rising inflation

Australian business confidence rebounds despite rising inflation

View of a construction site for a railway station on the Sydney Metro.

SYDNEY Reuters -- A measure of Australian business confidence rebounded in July as sales and profits held up surprisingly well in the face of rising interest rates and high inflation, though firms reported record costs amid supply constraints.

The index of business conditions at National Australia Bank Ltd NAB climbed 6 points to 20 in July, well above its long-run average, according to Tuesday's survey from National Australia Bank Ltd.

Its confidence measure bounced 5 points to 7 and reversing June's decline, leaving it just above the long-run average.

NAB chief economist Alan Oster said that the strength in conditions remained broad-based across states and industries, with a notable pickup in the construction sector.

Despite global and domestic economic difficulties, demand has remained strong and inflationary pressure continues to build, suggesting that inflation is yet to peak. The survey's measure of purchase costs went to a new high of 5.4%, while labor costs increased by 4.6% at a quarterly pace. The growth in retail prices went up to 3.3%, with product prices up 2.7%.

The Reserve Bank of Australia RBA has gone up four times since May due to a surge in inflation, lifting rates by 175 basis points to 1.85% and warning of more ahead.

Markets are leaning towards another 50 basis points in September and rates as high as 3.25% by the end of the year.

The consumer mood has been negatively affected by the hawkish outlook, with two surveys out on Tuesday showing falls in confidence amid much pessimism on the economic outlook.

NAB's survey shows resilience in real demand, with sales jumping 8 points to an historically high 27 in July.

Profitability increased 4 points to 17 and the employment index increased 6 points to 17, a strong reading that suggested the jobless rate could drop even further, having already fallen to a 48 year low of 3.5%.

Firms were running flat out with capacity utilisation rising to a record 86.7%, from 84.9% in June.