Australian Business Conditions Ease Slightly in January as Cost Pressures Hit Post-Pandemic Lows

Australian business conditions softened slightly in January, according to a closely watched survey by National Australia Bank (NAB), as sales and profitability showed modest declines. Despite the easing, the overall data suggests the economy remains resilient, with lower cost pressures offering a positive signal for the inflation outlook.

The NAB business conditions index slipped by two points to +7 in January, reversing gains recorded in December. Meanwhile, business confidence, which tends to be more volatile, edged up by one point to +3, indicating a cautious but improving sentiment among Australian businesses. While conditions eased, the index remains comfortably in positive territory, reflecting above-average levels of economic activity.

Sales were one of the weaker components in the survey, falling six points to +10. However, NAB noted this reading is still in line with the long-term average, suggesting demand has normalized rather than deteriorated sharply. Profitability also eased, with the profits index down three points to +8. Employment conditions held steady at +5 for the third consecutive month, highlighting continued resilience in labor demand despite higher interest rates and slowing momentum in other areas.

Importantly, the survey was conducted before the Reserve Bank of Australia’s recent decision to raise the cash rate by 25 basis points to 3.85%, marking its first rate hike in two years. The central bank’s move aims to rein in persistent inflation pressures, making the survey’s findings on costs particularly relevant.

Measures of labor and input costs both declined in January, while quarterly growth in retail prices slowed to 0.3%, down from 0.5% in December. According to NAB economist Michael Hayes, cost and price growth indicators have fallen to their lowest levels since the post-pandemic period began.

Overall, the January NAB survey suggests Australia’s economy has retained much of the momentum built over the past year. While capacity utilization has eased somewhat, activity levels remain high, and easing cost pressures could support a more favorable inflation trajectory in the months ahead.