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National Australia Bank’s (NAB) April Monthly Business Survey showed that input costs were increasingly outpacing price growth, putting pressure on margins and adding to concerns about inflation and further interest rate hikes.
NAB’s data indicated that purchase cost growth accelerated sharply to 4.5 per cent in quarterly equivalent terms in April, three times higher than February levels, while final product price growth rose to 1.8 per cent. NAB said that this is adding to concerns about inflation and the possibility of further rate hikes.
The gap between rising costs and selling prices is now evident across all industries, with purchase cost growth exceeding price growth by more than 1 percentage point economy-wide.
The squeeze is particularly acute in manufacturing and construction, where purchase cost growth is running 3.4 percentage points and 3.8 percentage points above price growth, respectively.
At the same time, broader business conditions have continued to deteriorate. NAB’s Business Conditions Index fell for a fourth consecutive month in April, declining 3 points to +3 index points.
Business confidence improved modestly in April but remained deeply negative at -24 index points, while capacity utilisation, despite easing, remained elevated at 82.5 per cent and above long-run averages.
NAB also warned that access to credit was becoming more difficult for Australian businesses, signalling a tightening in financial conditions as firms navigate both rising costs and softer demand conditions.
‘Eye-watering’ jump in costs
Speaking on NAB’s latest Broker Economics Webinar, chief economist Sally Auld said recent movements in business costs had become increasingly concerning.
“The most striking story in the NAB business survey is what’s going on with costs and prices,” Auld said.
“We ask businesses to basically tell us what they think their purchase costs have gone up by, or their input costs, and this month you can see pretty large jumps.”
In April, NAB found that purchase cost growth accelerated to 4.5 per cent. Cost growth was at 3 per cent in March and 1.5 per cent in February.
“We don’t always pay a whole lot of attention to this series, as it doesn’t tend to do very much, but that is an eye-watering move in the space of just two months,” Auld said.
Auld added NAB customers were increasingly reporting significant supplier price increases, with some businesses being warned to expect substantially higher invoices in coming months.
“This really syncs with the anecdotes that we’re getting from our business customers at NAB, who are constantly telling us that their suppliers are saying to them, ‘We’ve sent you the invoice for March or April, but we’re just letting you know that when the next invoice lands, you’re going to see plus 20 to 30 per cent on some of the inputs into your business,’” Auld said.
According to Auld, the sharp increase in costs is becoming particularly problematic because many businesses no longer have sufficient margins to absorb the pressure internally.
“The other signal that we can take from the quarterly business survey is that margins are not that robust,” she said.
“They’re better than they were at the beginning of 2025, but they’re certainly not as robust as they have been in the past.
“What that tells us is that most of these firms don’t have the capacity to absorb these large increases in purchase costs.”
Auld said businesses were increasingly passing those higher costs through to consumers, creating further complications for the Reserve Bank in its battle against inflation.
The survey found that retail price growth jumped to 3.2 per cent, a multi-year high.
“Again, pretty stratospheric jump just in the space of two months. This is going to worry the Reserve Bank, to put it bluntly,” Auld said.
RBA ‘already made a mistake’
The NAB chief economist also suggested the Reserve Bank may have acted too early when it began cutting rates before inflation was fully contained.
“A customer asked me at an event, ‘Do you think it’s possible that the Reserve Bank might make a policy error in the next couple of months?’” Auld said.
“My answer to them was effectively they’ve already made the mistake, and the mistake was not making sure, with the benefit of hindsight, that they were really on top of that inflation problem at the end of 2024 and into 2025 before they cut rates.”
Following this month’s rate hike, NAB expects the Reserve Bank may need to raise rates again as soon as June as inflation pressures broaden throughout the economy.
“We think there is a sense of urgency to what’s going on with the recalibration of monetary policy, and that’s why we think they’ll be up for another hike as soon as June,” Auld added.
[Related: Budget a win for SMEs, but warnings raised over tax changes]
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