Australian business activity picked up in July, as did spending.

A view of a construction site for a train station in Sydney Metro, Australia on July 22, 2021. REUTERS/Sam Holmes

SYDNEY, Aug 9 (Reuters) – Australia’s business confidence gauge rose again in July as companies reported record costs amid tight supply, with sales and profits rising surprisingly well against a backdrop of lower interest rates and higher inflation.

Tuesday’s survey from National Australia Bank Limited (NAB) (NAB.AX) showed its business conditions index rose 6 points to +20 in July, above the long-term average.

The confidence index rose 5 points to +7, reversing June’s decline and leaving it above its long-term average.

NAB Group Chief Economist Alan Oster said, “The strength in conditions is broadly based across states and industries, with a significant preference in the construction sector.”

“Overall, the survey suggests that despite the global and domestic economic headwinds, demand remains strong – and inflation is still at a high level.”

The survey found that purchase prices rose 5.4%, while labor costs rose 4.6% in the quarter. Retail price growth was up 3.3 percent, while producer prices rose 2.7 percent.

Rising inflation has prompted the Reserve Bank of Australia (RBA) to raise interest rates four times since early May, to 175 basis points to 1.85%, and has warned it will continue.

Markets edged up another 50 basis points in September and ended the year up 3.25%.

That bleak outlook has weighed on consumer sentiment, with two surveys out Tuesday showing a more pessimistic outlook for the economy. Read more

However, the NAB survey continued to show resilience in real demand, with July’s sales gauge jumping 8 points to a historic high of +27.

Profitability rose 4 points to +17 and the employment index gained 6 points to +17, a strong reading suggesting that the unemployment rate may fall further, already down to a 48-year low of 3.5%.

Companies’ capacity utilization rose to 86.7 percent from 84.9 percent in June.

Reporting by Wayne Cole; Editing by Sam Holmes

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