Australia business activity rebounds in Jan on strong sales

© Reuters. FILE PHOTO: A crane lifts building materials in front of scaffolding at a construction site in central Sydney, Australia, September 11, 2018. REUTERS/David Gray

SYDNEY (Reuters) – Australian business conditions rebounded sharply in January after three months of slowdown while cost pressures picked up again, a surprising sign of strength that could add to the case for yet more rises in interest rates.

Tuesday’s survey from National Australia Bank (OTC:) Ltd (NAB) showed its index of business conditions had risen 5 points to +18 in January, well above its long-run average.

The measure of confidence climbed 6 points to +6, led by gains in the wholesale and the transport and utilities industries.

“The improvement in confidence suggest firms have a more optimistic outlook as concerns about global growth prospects ease, while strong conditions are also providing evidence that the economy is more resilient than previously expected,” said Alan Oster, NAB’s chief economist.

The survey showed a notable 8-point pick-up in its sales index to a very high +28 in January, supported by historically low unemployment and rapid population growth.

Measures of employment edged up 2 points to +10, while profitability rose 4 points to +17.

The resilience of demand was one reason the Reserve Bank of Australia (RBA) lifted interest rates to a decade high of 3.35% last week and warned further increases would be necessary to contain inflationary pressures.

The NAB survey showed labour costs in November to January had been 2.7% higher than in August-October, when they were up 2.1% from the previous three months. The latest rise is well down from the 4.6% peak rate seen in May-July.

Purchase costs and retail prices also picked up, but again were well short of last year’s peaks.

“From here, the pace of ongoing supply chain healing and strength of wage growth will be important in shaping how much further cost pressures ease, while the resilience of consumption will continue to be tested as higher rates are passed through to households,” said Oster.

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