Australian firms enjoyed strong growth in sales and profits in the second quarter

Australian firms enjoyed strong growth in sales and profits in the second quarter, while subdued price pressures pointed to another soft reading for inflation, a survey showed on Thursday.

National Australia Bank’s quarterly survey of more than 910 firms showed its index of business conditions rose one point to +11 in the second quarter, well above the long-run average and the highest since the global financial crisis.

Its business confidence index eased 2 points to +2, though its monthly version of the survey showed a pick up in June.

The conditions index hit +12 in June while confidence rose to +6, even though the survey was taken amid the height of uncertainty over Britain’s vote on leaving the European Union and ahead of a July general election in Australia.

“Firms were still reporting business conditions consistent with an ongoing recovery in the non-mining sector”, said NAB chief economist Alan Oster.

“Firms’ expectations for business conditions in 3 and 12 months were pared back a little, but are still quite positive,” he added. “Optimism about the outlook should bode well for the labour market and business investment going forward.”

While activity was strong, the survey found firms still had little in the way of pricing power, with growth in retail and final product prices at very low levels.

“Both subdued purchase and labour costs are acting to contain product price inflation, although firms are still hinting at margin compression,” said Oster.

That could herald another soft reading for consumer price inflation in the second quarter, official data for which is due on July 27.

Underlying inflation slowed sharply to a record low of around 1.5 percent in the first quarter and many analysts suspect it might have dipped even further last quarter.

Financial markets are wagering that such an outcome might prompt the Reserve Bank of Australia (RBA) to cut interest rates to fresh lows of 1.5 per cent at its policy meeting on August. 2.


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