Why the RBA is likely to be pleased with the latest NAB business survey, in 2 charts

Slow progress, but moving in the right direction. RODGER BOSCH/AFP/Getty Images

The Reserve Bank of Australia (RBA) expects strong economic growth will help to lower unemployment, boost wages and, eventually, inflationary pressures.

It will be no doubt pleased by the latest Australian business confidence report released by the National Australia Bank (NAB) today, particularly the two charts below.

Here’s the first showing the percentage change in labour and purchase costs, as well as final product prices, reported by surveyed firms in August.


While final product price growth moderated a touch, and below the increase recorded for purchase costs which hit a multi-year high (indicating margin pressures), total growth in labour costs — what employees were paid — moved back towards the highs seen earlier in the year when Australian employment growth was significantly faster on a trend basis.

At +10, the NAB said the survey’s employment subindex points to “growth in employment of around 23,000 per month over the next 6 months”, a level that would be enough to lower unemployment further should participation rates remain steady.

So, according to firms surveyed, cost pressures rose as did their wages bill, at least in aggregate terms.

And while growth in final product prices moderated, the same cannot be said for retail prices. They increased at the fastest pace in three years.


“Price pressures appear to have risen over recent months, but remain relatively weak compared with history,” the NAB said.

That also fits with the view of the RBA, which expects “gradual” progress in reducing unemployment and having inflation return to the mid-point of its inflation target.