Australia’s business conditions improved dramatically in March amid strong retail sales and labour conditions, while rising retail prices raised concerns about inflation.
The National Australia Bank’s (NAB) latest index of business conditions, released on Tuesday, doubled to +18 in March, while confidence rose 3 points to +16.
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The results could provide a boost to Prime Minister Scott Morrison, whose Liberal-National coalition government is running behind the centre-left Labor Party in polls ahead of the May 21 federal election.
The NAB survey’s measure of sales jumped 13 points to +24, while profitability increased 8 points to +13. The employment index rose 4 points to +12, raising expectations the jobless rate could soon drop below 4 percent 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.”
Forward orders and business investment also picked up, according to the index, suggesting the recovery would continue.
In a worrying sign for inflation, however, purchase costs and labour costs rose 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 [consumer price index] reading is likely when released later in the month,” said Oster.
Tim Harcourt, chief economist at the Institute for Public Policy and Governance at the University of Technology Sydney, told Al Jazeera the index “masked some weakness in retail sales”.
“But inflation pressures building, but not wages, so no wage prices spiral concerns as we saw in the 70s,” Harcourt said.
Analysts have been warning the March quarter consumer price index would likely exceed expectations 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 Bank Group, out Tuesday, showed its sentiment index picked up 1.3 percent last week as petrol prices cooled just a little, though it remains below average.
Inflation expectations stayed high at 5.8 percent, reflecting cost of living pressures from petrol, food and housing.
Rising prices have yet to deter shoppers, with CommBank’s measure of household spending intentions jumping 9.2 percent in March to a record high, led by travel, transport and retail.