Daily Commentary BY THE CURVE TEAM –

Businesses Primed for Recovery

23rd of April, 2021

More business data suggest the economy is set for a strong recovery.

The Business survey for Q1 confirmed what each monthly survey indicated- that businesses are very optimistic about activity. Confidence and conditions are both at 17 up from 15 and 11 respectively.

Significantly, employment improved from 0 to 10, which aligns with the overwhelming improvement in the labour market over the last 3 months. As for inflation, there are tentative signs that it is picking up.

Purchase costs and retail prices were up 0.5%, higher than the 0.4% in Q4. Final product prices though remain low, with a growth of 0.2%, which is also coming off a lower base.

Inflation is a lag variable, so it is natural to expect that the improvement in confidence, conditions and employment have not immediately flowed through to inflation. Prior to covid though, the RBA continuously overestimated the likelihood of inflation, as seen in their forecasts consistently missing post GFC.

With such a drastic shift in monetary and fiscal policy, it is hard to know whether this will be the impetus for inflation to kick back into gear. There is speculation it will but that remains purely speculation.

Josh Stewart

Associate - Money Markets