Businesses bracing for more increases in input costs but have no room to pass onto consumers: NAB

Businesses are bracing for further input cost price rises in coming months, a senior economist says, at a time when there’s little room to pass it on to already-crunched consumers.

National Australia Bank’s latest monthly business survey, released on Tuesday, revealed measures of costs and price growth have continued to accelerate since the outbreak of the conflict in the Middle East.

In quarterly terms, purchase cost growth jumped another 4.5 per cent in April. This was three times the level recorded in February and outpaced final product price growth, at 1.8 per cent.

It suggests businesses are experiencing a margin squeeze, with input costs rising faster than they can increase selling price.

Since the US and Israel began a military offensive against Iran at the end of February, fuel and material prices have soared, adding to inflation fears that prompted another interest rate hike earlier this month.

The Reserve Bank of Australia doesn’t expect inflation — now at 4.6 per cent — to return to its target of between 2 to 3 per cent until early 2028.

“Hopefully (input costs) doesn’t accelerate too much further, certainly the price pressures are there and we know that there will be a little bit more to come,” NAB head of Australian economics Gareth Spence said on Tuesday.

“Businesses certainly face cost pressures that built up through the pandemic period and even a little bit after and it’s not like they saw a big fall in those prices.

“What (businesses) are saying is there’s a risk here that they need to pass that onto the consumer. How that goes will be determined by the strength in consumer itself.”

NAB said business confidence rose slightly in April, but was still in negative territory.

Confidence was mixed across industries, with partial recoveries in retail, transport and utilities, as well as recreation and personal services.

“The oil prices and the big negative global headlines are pretty visible, it’s not unreasonable that people are concerned a little bit about the outlook,” Mr Spence said.

In terms of the slight lift in confidence in retail, he said: “There has been some slowing in spending growth but it hasn’t fallen away”.

Mr Spence also said while business conditions were softer in April, it was still in positive territory.

“What it’s saying is certainly the outlook might be a little bit gloomy, unsurprisingly, people are facing into these pretty strong cost pressures and uncertainty, but actually activity is still moving along,” he said.

Across the country, business conditions rose in Victoria but fell across all other regions. But in trend terms, Victoria remained the only State with conditions in negative territory.

The NAB survey came a week after the RBA delivered its third interest rate hike this year and business leaders warned consumers were paying the price of the war.

Westpac boss Anthony Miller has warned multiple rate hikes from the central bank would spark a recession in Australia and new borrowers would struggle to keep pace with soaring mortgage repayments as unemployment rises.