Australian firms report easing cost pressures

Poppy Johnston | October 10, 2023

Cost and price pressures bugging Australian businesses lost some of their sting last month.

Surveying by the National Australia Bank revealed a weaker set of cost and price movement data for September.

This followed spikes across both purchase and labour cost growth over the past few months, interrupting the general trend down.

Movements in the survey were likely influenced by the large minimum and award wage rises that kicked in from July, helping to push labour cost growth higher.

The measure has moderated, and although elevated compared to long-run averages, fell to two per cent in September in quarterly equivalent terms.

Purchase price growth also remains high but eased materially, declining to 1.8 per cent. 

NAB chief economist Alan Oster said minimum wage impacts and movements in oil prices were disrupting the downward trajectory for inflation.

One minor worry in the survey was retail prices growth, which had not budged from 1.8 per cent.

Mr Oster said this could show up in the official consumer price index for the September quarter, which will be pivotal for the Reserve Bank as it looks to pull off its soft landing.

The bank’s economists are still expect inflation to pick up in the September quarter to reflect price pressure across energy, rents and a range of services. 

“Nonetheless, the September survey results suggest the momentum of some of the key cost pressures driving inflation may have started to step back in a welcome sign for the broader inflation outlook,” Mr Oster said.

The survey also captured ongoing resilience in business conditions even though the measure edged lower to 11 index points, to be down three points from August.

The business conditions marker is still sitting above historical average levels, pointing to strength in the sector.  

Business confidence also held steady a one index point, with forward orders also improving a little to be back in positive territory.

“Broadly, if I look at the survey, I’d say ‘well, can we avoid a recession?’ This is one definitely to say, ‘we probably can’,” Mr Oster said.

Consumers also appear to be feeling a little less glum, with the Westpac and Melbourne Institute index of consumer sentiment lifting 2.9 per cent to 82 in October.

Westpac senior economist Matthew Hassan said optimism was still in short supply and the index remained deeply in pessimistic territory. 

“While there are some faint glimmers of hope around family finances and the outlook for jobs, these are being overshadowed by still-high inflation and renewed rate rise concerns,” he said.

The ANZ and Roy Morgan’s weekly index has also been trending up of late, but is still stuck well below historical averages.

The gauge ticked 1.9 points higher last week to hit 80.1 index points.