Australian business confidence hits the doldrums amid surge in oil prices: NAB

Australian business confidence is falling further as a surge in oil prices, driven by renewed tensions in the Middle East, raises concerns over higher costs.

A new National Australia Bank survey on Tuesday revealed higher fuel costs, as well as the outlook for interest rates, inflation and the conflict in the Middle East pushed business confidence to a third-consecutive decline in September.

Business confidence is now sitting in the bottom 5 per cent of all readings in the survey’s history.

And while conditions held steady in September, NAB is tipping it will follow the trajectory of business sentiment.

“The trend decline in confidence suggests that conditions will likely fall further,” NAB said.

The bank said Australian businesses were facing both global and domestic challenges.

“Energy prices remain elevated, funding costs have risen and domestic growth has slowed in 2026,” it said.

“Against this backdrop, it is not surprising that both business confidence and business conditions are well below their respective long-run averages.”

The survey, which is closely watched by the Reserve Bank, showed business confidence fell in five out of eight industries.

Mining, wholesale and retail recorded “some improvement” in sentiment, NAB said, though in trend terms, confidence remained negative across all industries except mining.

A small recovery in profitability and trading conditions was wiped out by a sharp fall in employment, which slumped to its lowest level in five years.

Costs and price growth were largely unchanged over the month. But businesses continue to experience a margin squeeze, with purchase costs still outpacing final prices growth.

“The combination of weak confidence, cost pressures, above average capacity utilisation and softer profitability is unusual and may suggest a further softening in activity in the final quarter of 2026,” NAB said.

Global oil prices experienced extreme volatility in September after Yemen’s Iran-backed Houthis launched missile and drone strikes against Saudi Arabia.

The conflict, now a spillover of the US-Iran war, has driven oil prices higher, fuelling fears of persistent inflation in Australia.

Adding to cost pressures, the RBA last month raised the cash rate to 4.6 per cent — the highest since 2011 — and warned it may have to tighten further to curb persistent inflation.

In its minutes of last month’s meeting, also released on Tuesday, the central bank hinted it could raise interest rates to an 18-year high on Melbourne Cup day.

“The board will remain focused on its mandate to deliver price stability and full employment and will continue to do what it considered necessary to achieve that outcome, including increasing the cash rate target further if required,” the board said.