The Omicron COVID-19 variant and rising costs took their toll on small businesses during the early stages of 2022, particularly for those in hospitality and construction.
The National Australia Bank’s small and medium enterprise business survey showed both confidence and conditions fell in the March quarter.
NAB chief economist Alan Oster says costs remain elevated, with labour and materials availability continuing to be a constraint for many firms.
“This is translating to price increases,” Mr Oster said.
Crucial inflation figures for the March quarter are released next week, and will likely determine the timing of an increase in the cash rate by the Reserve Bank of Australia.
At this stage, economists are expecting the RBA to wait until its June board meeting before lifting the cash rate from its record low 0.1 per cent so it can also see wage growth data for the March quarter, due on May 18.
Commonwealth Bank group economists are expecting the consumer price index to surge 1.4 per cent in the quarter to 4.3 per cent annually, the fastest pace since September 2008, and up from 3.5 per cent in December.
The more interest rate-sensitive underlying measure of inflation is also expected to jump 1.2 per cent in the quarter to 3.4 per cent, up from 2.6 per cent previously, well above the RBA’s 2-3 per cent target.
“Petrol prices and housing purchase costs are key influences, but the Reserve Bank will be interested about whether price pressures are more broadly based,” Commonwealth Securities chief economist Craig James said.
NAB is also expecting a quarterly rise of 1.2 per cent in underlying inflation. NAB economist Taylor Nugent says although the bar appears high, a stellar underlying inflation result still has the potential to bring forward the first rate hike to the May 3 RBA board meeting, and in the middle of the election campaign.
He believes a quarterly rise of 1.5 per cent that is sufficiently broad-based – lifting the annual rate to 3.7 per cent – would be enough to see the RBA feel compelled to move in May.
The RBA did lift the cash rate during the 2007 election campaign, which former Liberal prime minister John Howard eventually lost.
Labor’s election campaign spokesman Jason Clare says the RBA has made the point that interest rates won’t stay at those emergency levels forever.
“I think the key point on inflation is that those numbers show that everything is going up except people’s wages,” he said in Sydney.
“(The prime minister) says unemployment’s at four per cent, isn’t everything perfect, when in the real world Aussies know that’s not true. This bloke is so out of touch, he might as well be on Mars.”
Still, the government points out inflation in Australia is well below that of other Western countries, such as the US and UK.
New Zealand’s inflation figures for the March quarter, released on Thursday, showed its annual rate running at 6.9 per cent, its highest in more than 30 years.
Meanwhile, Treasurer Josh Frydenberg again pointed to the International Monetary Fund’s latest world economic outlook, released this week, to highlight Australia’s positive standing.
“It upgraded Australia’s economic outlook and it downgraded the global economic outlook,” Mr Frydenberg said in Sydney.
“Australia has outperformed all major advanced economies through this pandemic.”
In contrast, NAB SME business for the March quarter showed its confidence index dropping six points to nine index points, softening across firms of all sizes.
The SME business conditions index also eased, down five points at six points.
