Business conditions in Australia continued to worsen in May, dropping below long-term averages as sales and profit growth slowed down, according to a survey released on Tuesday. At the same time, cost pressures began to intensify once more.
The National Australia Bank (NAB) survey indicated that the Business Conditions Index (BCI) declined by 1 point to +6, slightly below the long-term average. This decrease was primarily due to drops in the sales and earnings indexes, although the employment index rose after a decline the previous month. Additionally, the business confidence index fell by 5 points to -3.
"Overall, the message here is a mixed one for the RBA," noted Alan Oster, NAB chief economist. "There are warning signs on the outlook for growth but at the same time reasons to be very wary about the inflation outlook, and we expect the RBA to keep rates on hold for some time yet as they navigate through these contrasting risks."
Last month, the Reserve Bank of Australia maintained interest rates at 4.35% for the fourth consecutive meeting but has yet to make any final decisions regarding monetary policy. The bank stated it would closely monitor potential inflation risks.
Market predictions indicate that interest rates will remain at current levels for an extended period, with the first rate cut anticipated in July next year.
The NAB survey revealed that price pressures increased again in May. Quarterly retail price growth surged to 1.6% from the previous 1.0%, while labor and purchasing costs rose to 2.3% and 1.9% from 1.5% and 1.3%, respectively.
"We have been wary for some time that the path of inflation from here is likely to be gradual and uneven, and the survey results really reinforce this message," said Oster.
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