Australian business activity cooled slightly in January, but easing cost pressures offered fresh encouragement on the inflation outlook.
Earlier:
Weak Australian consumer sentiment backs March RBA pause, Westpac still sees May hike
Summary:
Australian business confidence edged higher in January, while business conditions eased modestly from December.
Sales and profits slowed slightly but remain around long-run average levels.
Employment held steady, signalling continued resilience in labour demand.
Cost and price pressures eased further, falling to their lowest levels since 2021.
Analysts say the data supports the case that inflation pressures are cooling, even as activity remains solid.
Australian business activity showed signs of modest cooling in January, though overall conditions remain solid and cost pressures continued to ease, offering a constructive signal for the inflation outlook.
The latest survey from National Australia Bank showed the business conditions index slipped to +7 in January from +9 in December, reversing part of the previous month’s improvement. Analysts say the pullback reflects some softening in sales and profit growth rather than a broader deterioration in activity.
Measures of trading conditions weakened, with sales growth easing back toward long-run averages and profitability moderating after a stronger end to 2025. Even so, analysts note that both indicators remain comfortably in expansionary territory, suggesting demand has slowed only marginally rather than stalling.
Business confidence, a more volatile component of the survey, edged higher to +3, pointing to a cautiously improving outlook among firms. Analysts interpret the divergence between confidence and conditions as evidence that businesses remain optimistic about the medium-term outlook, despite near-term headwinds from higher interest rates.
Labour demand remained resilient. Employment conditions were unchanged for a third consecutive month, reinforcing the view that firms are continuing to retain staff despite softer growth momentum. Analysts say this stability in hiring intentions suggests the labour market remains tight enough to support incomes, even as broader activity cools.
The most encouraging signal in the survey came from costs and prices. Measures of labour and input cost growth eased again in January, while quarterly retail price growth slowed further. Analysts note that cost and price indicators have now fallen to their lowest levels since the post-pandemic surge began, strengthening the case that inflationary pressures are gradually abating.
Importantly, the survey was conducted before the Reserve Bank of Australia delivered its first rate hike in two years last week. Analysts say this timing suggests further moderation in activity could emerge in coming months as higher borrowing costs begin to feed through more fully to business decisions.
Overall, analysts argue the January survey paints a balanced picture: activity has eased slightly but remains at healthy levels, while cooling cost pressures offer reassurance that inflation may continue to trend lower without a sharp downturn in growth.
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This article was written by Eamonn Sheridan at investinglive.com.