Daily Commentary BY THE CURVE TEAM –

Business Survey Resets Records

9th of June, 2021

More records were set for the most recent business survey, but a key indicator continues to lag.

Business conditions reset record highs yet again in May, breaking last month’s high of 32 by jumping to 37. Confidence on the other hand fell to 20 from 23, which remains extremely high by historical standards.

Remarkably, the survey period includes when the Victorian lockdown began. The ongoing lockdown would be expected to have effects on the next survey period, but there is clearly underlying strength.

Encouragingly, the employment index rose from 20 to 25, which will hopefully translate to an increase of jobs following a fall in April. In contrast to other countries though, strong economic indicators are yet to translate to evidence of inflation.

Yesterday in America, a small business survey showed that 40% of businesses had higher prices for the month. It also showed a lack of supply to fill the enormous number of jobs available, which translated to a third of those surveyed lifting wages for new positions. A similar scenario is playing out in New Zealand.

Unlike the US and New Zealand, May’s business survey showed only a marginal tick up in prices and wages and a slight decrease in input prices. The survey is an imperfect gauge on prices, so may not be capturing inflationary effects in the economy.

However, taking the data on Australia’s inflation at face value shows we are lagging other countries in reaching the inflation targets of the central bank. This may simply mean our inflationary impacts are delayed and will show up either later this year or next year.

But, if monetary levers and fiscal stimulus eases overseas before Australia has a material pick-up in inflation, then we may miss the initial boost to prices.

Josh Stewart

Associate - Money Markets