Wayne Cole

SYDNEY, (Reuters) – A gauge of Australian business conditions rose sharply in March. Firms saw strong sales and labor conditions. However, rising costs pushed the retail price higher which is a concern sign for inflation.

The Tuesday survey by National Australia Bank (OTC) (NAB), showed that its index of business conditions increased to +18 from March while confidence rose to +16.

Scott Morrison, Prime Minister of Canada, is likely to welcome the positive outcome. He’s currently in the middle a difficult election campaign.

In the latest survey, sales rose by 13 points to +24 while profitability rose by 8 points to +13. The index of employment grew 4 points to +12 suggesting that the unemployment rate will drop below 4% soon, for the first times since the 1970s.

“The improvement was largely driven by the retail sector, which saw conditions rise 23 points, as well as recreation & personal services and finance, business & property,” said NAB chief economist Alan Oster.

“Confidence jumped in the transport, construction, and recreation & personal services sectors.”

Also, forward orders as well as business investments increased suggesting that the recovery will continue.

It was a problem that inflation continued to be. The survey’s history shows that labour and purchase costs have risen at an unprecedented rate, pushing up retail prices.

Oster said that the continued increase in prices over the past months implies strong Q1 CPI readings when they are released later in a month.

Analysts warn that March’s quarter consumer price index will surprise at the high end and push the Reserve Bank of Australia (RBA), to increase interest rates in June.

A second survey was conducted by ANZ on Tuesday and showed that its sentiment index rose 1.3% as petrol prices cooled slightly, but it still remains lower than average.

The 5.8% inflation expectations reflect the rising cost of fuel, food, housing, and other living expenses.

CBA measured household spending intentions at 9.2%, putting it in the record books. This was driven by retail, travel and transport.

A strong spending season combined with an unprecedented 13-year low in unemployment suggests that the economy had a good quarter.