Pricing and procurement cost pressures have likely peaked: NAB

“The key takeaway from December’s monthly survey is that growth momentum has slowed significantly at the end of 2022, while price and procurement cost pressures are likely to have peaked.”


Total inflation results for the December quarter due out on Wednesday are expected to show annual price growth peaking at 7.5 percent, well below the Reserve Bank’s forecast of 8 percent, fueling expectations that the relentless cycle of rate hikes may end soon.

NAB’s head of market economics, Tapas Strickland, said the business survey was consistent with high inflation in December’s quarterly data due to be released Wednesday, but pointed to “slowing” inflation.

“We continue to see good reasons for a decline in inflation and we will monitor whether the trend of less hot inflation continues in the study,” he said.

Labor cost growth slowed to 2 percent, well below the peak of 4.6 percent reached in mid-2022, but still above the long-term average of 0.4 percent. Similarly, input cost growth slowed to 2.5 percent, down from a peak of 5.6 percent in July, and output costs fell 0.5 percentage point to 1.5 percent.

Other factors contributing to the more optimistic outlook for the coming year include a strong rebound in migration in 2022, which is expected to continue into 2023. a major concern of the RBA.

Global supply chains also continue to recover after a disruptive period. Trade data shows Australian importers are now seeing lower global freight costs, according to NAB.

China’s decision to scrap its COVID-zero policy and declare to the world it was once again “open for business” has boosted commodity prices, including a sharp rebound in iron ore prices above $120 a ton .

Conducted between Jan. 4 and Jan. 9, just after a period IFM Investors chief economist Alex Joiner called “peak pessimism,” the NAB survey underlined a growing gap between experience and expectations.

While business conditions eased, they remained well above the long-term average, which Mr Oster said “reflected the extraordinary strength of early to mid-2022”. At the same time, confidence was still below its long-term average, pointing to a high degree of uncertainty about the outlook.

Forward indicators eased, with forward orders losing two points and occupancy rates dropping about one point from extremely tight levels.

“The gap between current business conditions and business confidence remains wider than usual, but has narrowed,” said Oster. “While corporate reporting is still a healthy activity on average right now, they don’t necessarily expect it to continue.”

JPMorgan economist Jack Stinson said the “historically large” gap between the two was likely due to the aggressiveness of the rising interest rate cycle, and that companies are failing to realize that high inflation, which has supported margins, is having a substantial impact. necessitates policy tightening.