In spite of rising interest rates and high inflation, sales and earnings in Australia surprised many observers by holding steady in July. However, businesses also reported record costs due to supply shortages.
According to National Australia Bank Ltd.’s (NAB) survey released on Tuesday, the indicator of business conditions increased by 6 points to +20 in July, much above its historical average.
Its confidence index increased by 5 points to +7, reversing the downward trend from June and placing it just above the long-term average.
According to Alan Oster, chief economist of NAB group, “the strength in conditions remained broad-based across states and industries, with a noticeable pickup in the construction industry.”
Overall, the survey indicates that demand has remained strong despite regional and global economic headwinds, and inflationary pressure is still increasing, suggesting that inflation has not peaked.
The survey’s measure of buy costs increased to a record high of 5.4%, while the quarterly rate of labor costs growth was 4.6%. Retail price growth increased to 3.3%, while goods prices increased by 2.7%.
The Reserve Bank of Australia (RBA) has raised interest rates four times since the beginning of May, raising them by 175 basis points to 1.85% while announcing the possibility of future increases.
Rates could rise by another 50 basis points in September and as much as 3.25% by the end of the year, according to the markets.
With two surveys released on Tuesday indicating dramatic drops in confidence and widespread pessimism on the economic prospects, that hawkish outlook has impacted consumer sentiment.
Profitability increased by 4 points to +17 and employment increased by 6 points to +17, a solid figure that suggested the unemployment rate, which has already dropped to a 48-year low of 3.5%, might continue to decline.
In addition, businesses appeared to be operating at full capacity, with capacity utilization rocketing to a record 86.7% from 84.9% in June.
