Australian businesses are bracing for further increases in input costs, but many are finding they have no capacity to pass these expenses onto consumers, according to a new survey from the National Australia Bank (NAB).
NAB survey reveals cost pressures
The NAB's quarterly business survey, released on Thursday, showed that while business conditions remained positive overall, cost pressures were intensifying. The survey's measure of input costs rose to a record high, with businesses reporting higher expenses for materials, labour, and energy.
No room to pass on costs
Despite these rising costs, the survey found that businesses' pricing power was limited. The proportion of firms reporting that they had increased prices in the quarter fell, suggesting that many are absorbing the higher costs rather than passing them on to customers. This is putting pressure on profit margins, particularly in the retail and hospitality sectors.
Economic implications
NAB chief economist Alan Oster said the survey highlighted a challenging environment for businesses. "Input costs are rising sharply, but firms are finding it difficult to pass these on, which is squeezing margins," he said. "This is a concern for the broader economy, as it may lead to reduced investment and hiring."
The survey also showed that business confidence slipped slightly, although it remained above average. Firms in the construction and manufacturing sectors reported the strongest cost pressures, while those in the services sector were more optimistic about their ability to maintain margins.
Outlook for inflation
The Reserve Bank of Australia (RBA) has been closely watching cost pressures as it considers interest rate policy. While the survey suggests that inflationary pressures may be contained in the near term, the RBA has warned that persistent cost increases could eventually feed through to consumer prices.
"The survey data suggests that businesses are absorbing costs for now, but if these pressures continue, we may see a delayed pass-through to inflation," Oster said. "This will be a key factor in the RBA's decision-making in the coming months."
Overall, the NAB survey paints a picture of an economy where businesses are facing headwinds from rising costs but are constrained in their ability to respond. The outcome will depend on how long these cost pressures persist and whether consumer demand remains strong enough to support price increases.
